According to Nagel, the Bundesbank has to cope with balance sheet burdens because a tight monetary policy is currently necessary.
(Photo: dpa)
Frankfurt The turnaround in interest rates weighs heavily on the Bundesbank. The German central bank only saved the black zero in the 2022 result by releasing provisions of almost one billion euros. Otherwise, the bottom line would have been a loss.
That is why the Bundesbank will not be distributing any money to the federal government this year either. In the two Corona years 2020 and 2021, the Bundesbank only achieved a balanced result and did not transfer any profit to the federal government.
The fact that the Bundesbank lost money last year is partly due to the monetary policy of the past few years. For a long time, central banks bought government bonds with very low or even negative interest rates. These papers are currently yielding only low interest rates. At the same time, the monetary watchdogs have to pay high interest rates to commercial banks if they park their funds with the central banks.
“The development of earnings now and in the coming years is ultimately the result of the extraordinarily expansive monetary policy of the past few years,” said Bundesbank President Joachim Nagel at the presentation of the annual balance sheet.
In addition, the monetary policy of international central banks clouded the results of the Bundesbank. The US Federal Reserve started raising interest rates before the European Central Bank (ECB). That depressed the value of US Treasury bonds owned by the Bundesbank. However, the German monetary authorities had to account for these bonds at market prices. The result: a minus of 922 million euros.
However, the Bundesbank and other European central banks do not have to report the bonds of their home countries according to market prices. As a result, losses that they had to accept as a result are not yet visible in the balance sheets.
Foreign exchange also plays a role in the near-loss. The Bundesbank holds currency reserves that have lost value as a result of the changed interest rate level and are burdening the result with more than one billion euros.
Years of losses possible
Nagel described losses as likely in the coming years. Because in 2022 the key interest rates were still historically low until July. The central bank’s risk provisions should still be sufficient this year. “In the following years, however, the burdens will probably exceed our financial buffers,” said Nagel.
The Bundesbank should not be alone in this. Like the Bundesbank, the ECB could only stave off a loss by releasing provisions. The Swiss central bank suffered a loss of 133.6 billion euros last year. However, the Swiss hold a large portfolio of foreign bonds and shares, which they have to report at market prices.
The Bundesbank had already made losses in the 1970s. But even loss-making central banks are still able to act because they can print money themselves. In addition, Nagel confirmed on Wednesday that profitability is not the most important goal of a central bank, but currency stability. “We must continue to be robust and persistent in our efforts to combat inflation. To act hesitantly now would be a cardinal mistake,” said the Bundesbank President. If this involves financial burdens, the central bank can cope with it. The burdens would pass, then the Bundesbank would make profits again.
In the fight against high inflation, the Bundesbank President expects the ECB to raise interest rates further.
The next interest rate meeting of the European Central Bank (ECB) is on March 16th. ECB President Christine Lagarde had already announced another sharp interest rate hike of 0.50 percentage points. According to Nagel, further significant rate hikes could be necessary after that.
More: The pressure on the ECB is increasing.