Lagarde: Rising bond yields slow growth – and with it inflation
The ECB president sees tighter financing conditions in the euro area. Bundesbank chief Nagel, by contrast, warns that inflation has not yet been defeated. Another rate hike is expected in December.
Archive image · Photo: European Parliament from EU / Wikimedia Commons, CC BY 2.0 (cropped and resized)
ECB President Christine Lagarde expects the global rise in bond yields to dampen inflation in the euro area. Higher borrowing costs would slow growth and thus inflation as well, she told central bankers and finance ministers in Bangkok on Saturday, according to Reuters. Financing conditions have tightened since the last ECB meeting, she said. As a result, the pass-through of war-driven higher fuel prices to other prices will be smaller than assumed in the September forecast.
Euro area inflation rose to 3.8% in September, driven mainly by energy. The ECB has raised its key interest rates twice in the past four months, by 0.25 percentage point each time. According to Reuters, another move is expected in December that would take the key rate to 2.75% – a level the ECB considers restrictive. Lagarde did not specify a fixed rate path; decisions remain data-dependent, she said.
Bundesbank President Joachim Nagel said inflation has not yet been defeated and the ECB may have to do more. ECB Governing Council member Olli Rehn sees no second-round effects on prices and wages so far, but warned they could creep in “quietly, like a cat in socks.” Lagarde also commented on strains at private credit funds: they are reporting outflows, but euro area banks have only limited direct exposure.