• The Bundesbank can bear financial burdens
• President Nagel: The balance sheet is sound

As in 2023, the monetary policy measures of the past few years shaped the Bundesbank’s annual accounts in the 2024 financial year. For the reporting year, it has recorded an accumulated loss of €19.2 billion. In future, however, the additional losses per year are expected to be lower. The peak annual burdens are likely to be behind us, Bundesbank President Joachim Nagel said at the press conference presenting the Bank’s annual accounts. At the same time, total assets declined in 2024, as intended. They contracted by around €149 billion, or 5.9%, to €2,373 billion.

The Bundesbank has a sound balance sheet, Mr Nagel stressed, explaining that the value of its revaluation reserves, especially for gold, was many times greater than the current and prospective accumulated losses. In specific terms, they totalled €267 billion at the end of 2024. The Bundesbank will carry its losses forward over the next few years and offset them against future profits. The Bundesbank is fully unrestricted in its ability to act, Mr Nagel remarked.

German economy suffering from stubborn stagnation

Turning his attention to the German economy, the Bundesbank President pointed to the state of stubborn stagnation in which it found itself while many other countries’ economies were growing. Structural problems played a key role in this regard. High energy prices, the green transformation and demographic change were putting export-oriented industry, in particular, under great pressure, Mr Nagel explained. Many enterprises were also bemoaning the large fiscal burden and increasing bureaucratic hurdles. Concerning the outcome of the German general election, the Bundesbank President appealed to all parties involved to be cognisant of their responsibility: Smart, consistent and reliable economic policymaking can unleash a sense of change and increase the willingness for greater investment.

Price stability within sight, further ECB interest rate cuts possible

The core mandate of the Bundesbank is to safeguard price stability. Mr Nagel said that the inflation rate as measured by the Harmonised Index of Consumer Prices (HICP) had fallen noticeably in 2024. On an annual average, it fell to 2.5 % in Germany, following double-digit growth rates at the end of 2022. It is thus still above the medium-term target of 2 %. We anticipate that Germany will see a sustainable return to a level of 2 % in 2026, the Bundesbank President remarked. 

Mr Nagel emphasised that the Governing Council of the European Central Bank (ECB) had helped to break the wave of euro area inflation through an unprecedented monetary policy turnaround in 2022 and 2023. Incoming data suggested that inflation throughout the euro area would already reach the 2 % target this year. This would allow us on the ECB Governing Council to lower the key interest rates further, Mr Nagel said. Since June 2024, the ECB Governing Council has already lowered the deposit facility rate five times. It currently stands at 2.75 %. Overall, the price outlook was encouraging, Mr Nagel explained, continuing: “Price stability is within reach.”

Annual balance sheet burdens will decrease

The Bundesbank’s earnings situation improved slightly on the year. However, the monetary policy measures of the past few years are still having an effect, Bundesbank First Deputy Governor Sabine Mauderer said, explaining that after the remaining reserves of €0.7 billion had been released in full, the accumulated loss totalled €19.2 billion. Net interest income, the largest component of the profit and loss account, improved slightly by €0.8 billion on the year, but was still deep in negative territory, at -€13.1 billion.

The Bundesbank’s sizeable holdings of securities for monetary policy purposes pose an interest rate risk: Much like in 2023, the combination of long-term monetary policy securities – generating low levels of remuneration – on the assets side and credit institutions’ short-term deposits remunerated at higher rates on the liabilities side was a source of considerable strain, she continued. She expects these financial burdens to ease in 2025. For one thing, low-remuneration bonds in the portfolio would be maturing. For another, the interest expense for credit institutions’ deposits was likely to decline further. Ms Mauderer emphasised that interest rate risk would become smaller as monetary policy securities holdings were likely to decrease more sharply.

Total assets declined further in 2024

The Bundesbank’s total assets declined in 2024. Ms Mauderer cited three main factors driving this development: securities holdings from the monetary policy purchase programmes decreased, lending related to monetary policy operations contracted and the TARGET claim on the ECB fell. Correspondingly, on the liabilities side, deposits related to monetary policy operations were down and euro deposits of domestic and foreign depositors also fell.

Ms Mauderer likewise stressed that the Bundesbank’s sizeable valuation reserves reflected the degree to which its balance sheet was sound. There had been further growth in the revaluation reserve for gold as a result of the higher gold price, whilst a weaker euro resulted in an expanded revaluation reserve for foreign currency. The Bundesbank can bear both the current and the foreseeable financial burdens, First Deputy Governor Mauderer said.