The European Central Bank (ECB) posted a record loss of EUR 7.944 billion last year. It announced its results in a press release today. The loss is due to high interest costs, which are the result of the central bank’s efforts to curb inflation through high interest rates.
Central bank reports losses, cites necessary measures for stability
Last year, the loss was EUR 1.266 billion. However, it was significantly reduced by the release of EUR 6.620 billion from the financial risk reserves. Without the release of reserves, the loss the year before would have been EUR 7.886 billion, so it would have been at a similar level to last year.
“These losses came after many years of substantial gains and are the result of measures that were necessary to fulfil the primary task of maintaining price stability,” the central bank said. It added that losses could continue in future years, but on a smaller scale. It also stressed that it was able to operate efficiently and fulfil its primary task despite the losses.
ECB interest rate cuts and the problem of excess liquidity
The ECB started raising interest rates in July 2022 to bring inflation under control. The ECB deposit rate has gradually climbed to a record four percent. The bank kept the rate at this level until last June, when it started cutting interest rates. Since then, it has cut the deposit rate five times, each time by a quarter of a percentage point. The rate is now at a two-year low of 2.75 per cent.
However, according to Reuters, there is still a significant excess of cash in the financial system, a remnant of the central bank’s earlier efforts to boost inflation with large-scale bond purchases. Commercial banks are now depositing this excess cash with the central bank and collecting interest from it. These are significantly higher than the yields on the bonds the central bank has bought in the past.
Source: Reuters
