The new President of the Bundesbank, Joachim Nagel, has now also spoken out in the dispute over the realignment of the monetary policy of the European Central Bank (ECB).

It's about whether the central bank will move away from its ultra-loose monetary policy in the face of record-high inflation rates - or whether, in view of the enormous uncertainty caused by the Ukraine war, would it be better to continue with it.

Christian Siedenbiedel

Editor in Business.

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"We have to keep an eye on the normalization of our monetary policy," Nagel said emphatically on Wednesday when the Bundesbank presented its balance sheet.

He struck a completely different tone than, for example, the Greek central bank chief Yannis Stournaras: He had taken the view that, in view of the war, the ECB should continue to buy bonds at least until the end of the year - and formally take interest rate cuts off the table.

The 55-year-old Nagel, who was born in Karlsruhe, had already announced in his inaugural speech in January that he wanted to continue in office in the spirit of his predecessor Jens Weidmann.

The latter had repeatedly pointed out that the ECB would have to leave crisis mode at some point and normalize its monetary policy.

Three weeks ago, Nagel then told the weekly newspaper "Die Zeit" that the ECB had to react quickly to the high inflation: The key interest rates could rise this year.

But then came Russia's attack on Ukraine - and at the ECB everything was discussed again from scratch.

The President of the Bundesbank is now emphasizing that his bank is expecting another surge in energy prices because of the Ukraine crisis.

Nagel revised the Bundesbank's inflation forecast for the current year upwards again, by half a percentage point to 5 percent according to the European calculation method of the Harmonized Index of Consumer Prices (HICP).

"A high rate of inflation is also to be expected for the euro zone," said Nagel.

No money for Berlin

The Bundesbank's balance sheet itself is primarily characterized by the consequences of the bond purchases - the expectation of rising interest rates has also prompted the Bundesbank to make higher risk provisions.

For the second time in a row, the transfer from Frankfurt to the Federal Minister of Finance has failed.

As in 2020, the Bundesbank is only showing a balanced annual result for 2021 - and is therefore not transferring any profit to the federal budget.

Almost two weeks ago, the ECB announced that its profit would be significantly lower this year and that it would therefore be able to distribute less to the national central banks.

The surplus fell from 1.6 to almost 0.2 billion euros.

Among other things, this was justified with provisions for risks from the bond purchases.

Interest rate risks also play an important role at the Bundesbank.

It works like this: The central bank balance sheet shows the purchased bonds on the assets side, i.e. among the assets.

These currently have low and sometimes even negative interest rates.

On the passive side, i.e. among the liabilities, there are the deposits of the banks with the central bank.

The banks currently have to pay negative interest for them with certain allowances.

If interest rates rise now, the Bundesbank is faced with the following situation: it may no longer receive interest on bank deposits, but may have to pay some again.

On the other hand, bonds with low to negative interest rates will remain on the books, possibly for a longer period of time.

The central bank does not have to make risk provisions for price losses that occur when interest rates rise and bond prices fall.

It also assumes that it will hold the bonds to maturity.

Intermediate price fluctuations then play no role.

The interest rate risk affects them in a different way: through the "mismatch", the possible divergence in the future interest income situation on the assets and liabilities side.

"As a prudent central bank, we have to take precautions against these risks," said Nagel.

In addition, net interest income, the most important item in the income statement, fell from 2.9 billion euros to 2.5 billion euros.

The Bundesbank increased the risk provision in the amount of the available annual result by 1.3 billion euros to 20.2 billion euros.

Gold stocks down slightly

"Total assets have reached a good EUR 3 trillion, the highest level since the Bundesbank was founded - it is 19 percent above the previous year's record level of EUR 2.5 trillion," said Board Member Johannes Beermann.

This is partly due to the bond purchases.

The net receivables from the European payment system Target 2 meanwhile increased by 124 billion to 1.2 trillion euros.

The Bundesbank's gold holdings fell by around three tons to 3,362 tons over the year.

They are spread over three deposits: 1710 tons are in Frankfurt, 1236 in New York and 416 in London;

the decline was recorded at the British storage location.

Overall, the gold is currently worth around 166.9 billion euros.