The European Central Bank said Thursday it booked its third straight loss in 2025 due to the lingering impact of a record run of interest rate hikes.

The ECB lost 1.25 billion euros ($1.47 billion) last year, although this was sharply down from an all-time shortfall of 7.9 billion euros in 2024.

In 2023 the Frankfurt-based institution reported its first annual loss for nearly two decades, following aggressive rate hikes to tame a surge in inflation sparked by Russia’s 2022 full-scale invasion of Ukraine.

As well as pushing up borrowing costs for households and firms in the 21-nation euro area, the hikes weighed heavily on the ECB’s own balance sheet.

Before kicking off the hiking cycle in 2022, the ECB had kept interest rates at low levels for many years.

“The losses since 2022 come after many years of substantial profits and are the result of policy actions” that were necessary to combat inflation, said the central bank.

Inflation has now cooled substantially — it was below the ECB’s two-percent target in January — and the central bank has been lowering rates since mid-2024.

The impact of reductions will take time to be felt, however.

Nevertheless the ECB noted that interest expenses in 2025 were already far lower than in 2024, and said it expected to return to profit this year or next.

The central bank also stressed it can operate effectively “regardless of any losses”.

Addressing the European Parliament Thursday, ECB President Christine Lagarde said the the euro area had faced an “exceptionally challenging environment over recent years, with high inflation affecting both households and firms”.

“We can now see, however, that our efforts to bring inflation down have been effective,” she said.