The first loss in nearly 20 years! Is the European Central Bank in a cold winter?

The European Central Bank recently released its first annual loss report since 2004, which has attracted widespread attention. According to the disclosure, the huge loss this year reached 1.3 billion euros, mainly due to an increase in expenses caused by a series of interest rate hikes. However, despite facing this challenge, the central bank has issued a statement emphasizing that these losses will not weaken its ability to implement effective monetary policy, and expects to recover profits in the foreseeable future.

From July 2022 to September 2023, the European Central Bank implemented a series of interest rate raising policies, raising the interest rate from a negative low to 4%, which is a strategic response to the inflationary pressure caused by the COVID-19 and geopolitical tensions caused by the Russia-Ukraine conflict. This strategic adjustment has had a significant impact not only on the European Central Bank itself, but also on the global economy.

The process of rising interest rates is not without cost. The European Central Bank is facing the problem of continuously increasing debt interest expenses, which have far exceeded the income generated by its assets. Especially due to fixed interest rates or extended maturities, its asset income growth has been slow, resulting in a staggering net interest loss of 7.19 billion euros in 2023, in sharp contrast to the previous 900 million euros in revenue.

Over the past eight years, the European Central Bank has implemented a controversial but widespread fiscal stimulus policy, leading to a sharp expansion of its balance sheet. However, in March 2023, the central bank suddenly shifted towards quantitative tightening policies, marking a new stage in its monetary policy strategy. This transformation has led to several national central banks, including the German central bank and the Swiss central bank, falling into deficit.

However, the impact of these losses is not only reflected in numbers. They also represent a part of the central bank's credibility and may affect its future broader actions. However, experts believe that the current predicament of the European Central Bank is only a temporary setback and is unlikely to affect its monetary policy decisions. They believe that the European Central Bank's ability to respond to financial storms is unparalleled.

The latest consumer expectation survey showed that although the perceived median inflation has dropped to 6.0% in the past 12 months, expectations for inflation next year have slightly increased, reaching 3.3%. This indicates that consumers are cautious and optimistic, and they expect inflation rates to be much lower than past levels in the near future.

For the BRICS countries, the news of significant losses suffered by the European Central Bank may indicate a potential weakness they may face in 2024. The BRICS countries have been committed to expanding and promoting a new currency for global use. Due to the impact of inflation on the euro and central bank reports of losses, BRICS countries may seek to continue expanding and may even extend to Europe. This trend has attracted the attention of some European countries, and some may consider joining the BRICS countries in 2024.

Although it seems imperative for the European Central Bank to cut interest rates under the current situation, there are clear disagreements on the timing of the rate cut. Given its highly cautious stance at the beginning of the interest rate hike cycle, the European Central Bank may not be willing to take the lead in implementing rate cuts. Although macro data suggests that the European Central Bank does not seem to have many options, in order to ensure inflation control, the European Central Bank may choose to be a bit wait-and-see.