Finance: the ECB facing its first annual deficit in 2023

The ECB suffered a loss of 1.3 billion euros in 2023, a first in its history. What are the reasons for this negative result? What are the implications for eurozone monetary policy and the financial market?

The effects of rising interest rates on ECB finance

The ECB had to face an increase in its interest charges in 2023, linked to the rise in its key rates. These rates have passed from – 0.5% to 0.25% in one year, in order to fight inflation in the euro zone. Unfortunately, the ECB’s interest income has not kept pace. Thus, the ECB recorded a net interest loss of 2.4 billion euros in 2023.

The provision for financial risks, an important item of expenditure for the ECB

The ECB also had to face increased financial risks in 2023 linked to:

• the volatility of financial and stock markets,
• the depreciation of certain currencies against the euro.

To protect itself from these risks, the ECB decided to reconstitute its provision for financial risks, which it had reduced in 2020 and 2021. This provision was brought from 7.8 billion euros to 14.4 billion euros in 2023. This operation had a negative impact of 6.6 billion euros on the ECB’s net profit.

Finance: The ECB reports its loss on the balance sheet and maintains its monetary policy

“The loss of 1.3 billion euros will be carried over to the balance sheet and offset by future profits”, explain the ECB. According to this major player in the finance sector, this loss affects neither its ability to conduct an effective monetary policy nor its financial solidity.

The ECB also recalled its new monetary policy strategy, adopted in 2021. It aims to achieve an inflation target of 2% in the medium term, in a symmetrical manner. This means that the ECB tolerates temporary deviations of inflation above or below its target. It will use all the instruments at its disposal: negative interest rates, asset purchases, etc.