Question

what does it mean that central banks are taking losses? Why is this happening?

Answer 1

Taking on losses by the Central bank simply means the banks absorbing/ taking up activities over and above their ususal normal role. These include providing subsidised priority sector loans, private/public debt takeover, rescuing financial institutions in need, etc.

These are measures of extreme conditions. As central bank is supposed to regulate money supply in the economy and control inflation, these steps are taken up in accordance with this aim as opposed to the aim of creating profit. By absorbing such losses, they protect the economy from shocks. Some of the measures can be obsreved during this COVID 19 wave, where these banks have absorbed losses by granting subsidies to keep the economic impact of the pandemic at a minimum for the public and the economy as a whole.