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 is eating away at the Bundesbank’s earnings. The German central bank only generated a black zero last year, which is why the distribution to the federal government is canceled again, as the Bundesbank announced on Wednesday in Frankfurt.
In order to achieve this result, the Bundesbank also drew on risk provisions of almost one billion euros. 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 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. A tight monetary policy is now necessary in order to restore price stability in the near future. “If this involves balance sheet burdens, we have to and can we cope with that.” The burdens would pass, after which the Bundesbank would make profits again.
The ECB and the national central banks of the euro countries had launched bond purchase programs worth billions in recent years to stimulate the economy and mitigate the consequences of the corona pandemic. However, the high stocks of bonds are currently yielding only low interest rates.
On the other hand, as part of the turnaround in interest rates, the monetary authorities now have to pay the financial institutions high interest rates again for their deposits at the central bank. At the Bundesbank, net interest income from financial transactions was also impacted by higher US yields. The US Federal Reserve had already switched to a rate hike course before the ECB.
Bundesbank President Nagel had already described losses over the next few years as very likely. As early as the 1970s, the Bundesbank had made losses for several years. The ECB was only able to avert a loss for 2022 thanks to the reversal of provisions in the billions.
Nagel expects further rate hikes
In the fight against high inflation, the Bundesbank President expects the ECB to raise interest rates further. He is firmly convinced that the monetary watchdogs still have a long way to go, Nagel said on Wednesday at the Bundesbank’s press conference on the occasion of the presentation of the 2022 annual report.
“We must continue to act robustly and persistently against inflation.” Inflation is a persistent event. And then you have to be a bit more persistent in monetary policy. Those are past experiences.
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, more significant rate hikes could be necessary after that.
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