The European Central Bank (ECB) reported its first annual loss since 2004 after making large interest rate payouts, CNBC reports.

The ECB recorded losses in the amount of 1.3 billion euros, which would have been even greater if the bank had not released 6.6 billion euros – the entire reserve for financial risks accumulated over several years.

The ECB said it expected further losses over the next few years, losses that would not affect “the ability to conduct effective monetary policy”.

Between July 2022 and September 2023, the central bank raised interest rates from negative territory to a record 4% in response to high inflation due to the Covid-19 pandemic and partial loss of access to Russian energy resources.

The institution experienced an increase in interest expenses while revenues did not keep pace, as many of them had fixed interest rates or had long maturities.

The ECB posted a net interest loss of €7.19 billion in 2023 on revenue of €900 million in 2022.

“The ECB’s financial strength is further underlined by its capital and revaluation accounts, which together stood at €46 billion at the end of 2023,” the central bank said in a statement.

The ECB will transfer the loss to the balance sheet to offset future gains. It will not distribute profits to eurozone national central banks in 2023.

The central bank began quantitative tightening in March 2023. Higher interest rates led to losses for several national central banks, including Germany’s Bundesbank and the Swiss National Bank.

While the losses do not affect the central bank’s ability to meet its mandate to maintain price stability, the annual figures are seen as a measure of confidence and could have implications for its broader actions.

Holger Schmieding, chief economist at Berenberg, said the ECB’s results were “quite expected” and “not a major concern”.

“It will not affect the monetary policy. There is no institution in the economy that can handle temporary losses better than a central bank,” he told CNBC.