German Central Banks Post Multi-Billion Euro Losses For 2023 Predicting More Financial Pain To Come

The German central bank, holds a significant amount of securities susceptible to interest rate fluctuations, which have been heavily impacted by the European Central Bank's unprecedented series of rate hikes.

Recently, the ECB reported its first annual loss since 2004, totaling 1.3 billion euros, while also utilizing its risk provisions of 6.6 billion euros. This follows nearly a decade of financial stimulus in the euro zone, involving measures such as quantitative easing and large-scale government bond purchases aimed at stimulating growth, which are now resulting in substantial payouts.

While central banks emphasize that annual profits and losses do not directly affect their ability to conduct monetary policy and ensure price stability, they are closely monitored as they can impact credibility, particularly if the need for a bailout arises.

They also affect the payouts to other entities. For instance, the Bundesbank has not made payments to the federal budget for several years and indicated that this trend is likely to continue for a significant period. Similarly, the ECB will not distribute profits to euro zone national central banks for 2023.

Nagel, a representative, stated that the decision to raise interest rates was necessary to combat high inflation. He added that the ECB's Governing Council will only consider rate cuts once inflation has returned to target levels based on data.
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Regarding the German economy, Nagel expressed optimism, stating, "Our experts anticipate a gradual recovery in the German economy throughout the year, with a return to growth expected. Foreign markets are expected to provide support, and increased household purchasing power should bolster private consumption."