(Bloomberg) -- The European Central Bank recorded its first loss in two decades following an unprecedented ramp-up in borrowing costs to tackle inflation.

The shortfall for 2023 — even after the full release of €6.6 billion ($7.2 billion) in risk provisions — totaled €1.27 billion, as rising interest rates increased the cost of past stimulus efforts. While the ECB also warned of negative results “over the next few years,” it said this won’t impede its operations.

“The loss, which followed almost two decades of substantial profits, reflects the role and necessary policy actions of the Eurosystem in fulfilling its primary mandate of maintaining price stability and has no impact on its ability to conduct effective monetary policy,” the ECB said in a statement on Thursday. 

Central banks around the world have suffered financially from the combined effects of large asset-purchase programs conducted when inflation was low and quickly rising interest rates after the pandemic. The full extent of the issue in the euro zone will only become visible as national central banks report their own results over the coming weeks — including the Bundesbank, on Friday. 

The situation has led to speculation that monetary authorities may eventually need cash injections from governments, putting their independence at risk. Officials, though, have stressed that this needn’t be the case as they can operate even with negative equity and make up for current losses with future profits. 

The Bank of France “has the provisions and other means to cover these losses while maintaining positive capital and without calling for a public recapitalization,” Governor Francois Villeroy de Galhau said in January.

An International Monetary Fund paper last year also concluded that central banks in the euro area will be able to recoup their losses without any government help. 

The ECB stressed that its financial position remains solid despite last year’s loss, with net equity still amounting to almost €45 billion.

The situation may also improve from here as the ECB’s balance sheet declines due to the unwinding of past bond purchases. Interest-rate expenses, meanwhile, should fall if borrowing costs are lowered in the coming months, as widely expected. 

After the next few years, the ECB “is then projected to return to making sustained profits,” it said. Last year’s loss “will be carried forward on the ECB’s balance sheet to be offset against future profits.”

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