European Central Bank (ECB) President Christine Lagarde warned that a recent selloff in bonds is raising borrowing costs in the euro zone, which could slow economic growth and inflation. Speaking at a gathering of central bankers and finance ministers in Bangkok, Lagarde noted that long-term interest rates have risen significantly since the ECB's last meeting, making it harder for consumers to absorb higher fuel prices stemming from the Iran war.
The ECB has raised interest rates twice in the past four months, with another hike expected in December, bringing the policy rate to 2.75%. This level is considered restrictive, meaning it should curb economic activity. ECB policymaker Joachin Nagel suggested that more policy tightening might be necessary, stating, "We are fighting against inflation, I’m of the opinion that the job is not done so far."
Meanwhile, Olli Rehn, another ECB policymaker, emphasized the need to monitor "second-round effects" from energy inflation on other prices and wages. "There is no sign of second-round effects, but we will stay vigilant because they might creep in quietly like a cat in socks," Rehn said.