In a significant turn of events, the Deutsche Bundesbank has reported its first annual loss since 1979, amounting to approximately EUR19.2 billion for the previous year. This record-setting deficit marks a departure from the previous trend of profits that had contributed to federal revenue over the past years. The Bundesbank's financial difficulties stem from the pressures of the recent interest rate hikes initiated by the European Central Bank (ECB), aimed at curbing soaring inflation rates. While the bank narrowly avoided a loss in 2023, it has been forced to deplete its reserves to manage its financial obligations. As a result, the outlook for the coming years suggests that further losses are likely, although they may be less severe than those recorded in the past year. Bundesbank President Joachim Nagel emphasized that while the worst of the financial strain may have passed, the institution anticipates a prolonged period without any profit distributions. In 2023, the Bundesbank managed to stay just above water thanks to its substantial reserves. However, these reserves have been significantly diminished due to the rapid shifts in interest rates, leaving only EUR0.7 billion available to offset losses for the current year. Despite a slight improvement in interest income, it remains inadequate, with net income from interest at EUR13.1 billion, compared to EUR13.9 billion the previous year. The ECB has aggressively raised interest rates since the summer of 2022 to combat inflation, which has since receded from its peak. Recently, the ECB has even begun to lower rates, reflecting a changing economic landscape. The increase in interest rates has led to higher expenses for central banks, which have not been matched by rising interest income. Additionally, many long-term securities, such as government and corporate bonds, which the ECB purchased extensively in previous years, currently yield lower interest rates. The ECB itself has faced its own financial hurdles, reporting a loss for the second consecutive year, with a staggering deficit of EUR7.9 billion in 2024. This has further delayed the usual profit distributions to national central banks, including the Bundesbank. Despite these challenges, Bundesbank officials assert that the institution remains financially stable. The notable increase in the value of gold reserves, driven by rising gold prices, has also bolstered the bank's balance sheet. By the end of last year, the total value of the Bundesbank's gold and foreign currency reserves stood at approximately EUR267 billion, a significant increase from EUR197 billion a year earlier. The primary mandate of central banks is not to generate profits but to ensure price stability and maintain a stable currency within their respective regions. The ECB and national central banks strive to achieve a medium-term inflation target of around 2.0 percent. Recently, ECB President Christine Lagarde expressed optimism that this target could be reached within the current year. Rising inflation rates can adversely affect consumer purchasing power, meaning individuals can buy less for each euro spent. Bundesbank President Nagel also shares a positive outlook regarding inflation trends, suggesting that a return to the targeted 2.0 percent inflation rate in Germany could be expected by 2026. The Bundesbank's recent financial losses are a stark reminder of the impact that monetary policy shifts can have on national central banks. For years, the German federal budget has relied on an expected annual profit of approximately EUR2.5 billion from the Bundesbank, a figure that will now need to be reassessed. In 2019, the Bundesbank reported its highest profit since the financial crisis, at EUR5.85 billion. The last time the bank experienced such a loss was 45 years ago, in 1979, when it recorded a deficit of roughly EUR2.9 billion.