Eurozone bond selloff to slow growth, ease inflation: Lagarde

European Central Bank President Christine Lagarde has warned that the global bond selloff is increasing eurozone borrowing costs and is likely to weaken economic activity while restraining inflation. Speaking at a gathering of central bankers and finance ministers in Bangkok, she said long-term interest rates had climbed substantially since the ECB’s previous policy meeting.

The Economic Times Markets, citing Reuters in its October 19 report, said Lagarde described financing conditions as tighter than the central bank had anticipated. That tightening could limit how far higher energy prices associated with the Iran war spread into broader inflation, though the effects could differ from earlier ECB projections.

Debt concerns and demand for credit push yields higher

The report linked the rise in global bond yields over recent weeks to concerns about government indebtedness, stubborn inflation and greater competition for credit from artificial-intelligence investment. France, with its substantial debt burden, was identified as one of the countries particularly affected.

Higher financing costs can deter household spending and business investment. That weakens demand and can ease price pressures over time, but it also adds to the economic strain from more expensive energy. For the ECB, the selloff therefore complicates the choice between containing inflation and avoiding excessive damage to growth.

Further rate rise expected, not decided

According to the report, the ECB has increased interest rates twice over the past four months. Another rise is expected in December, which would bring its policy rate to 2.75%—a level the central bank regards as restrictive for economic activity. The December move is an expectation, not an announced decision.

Bundesbank President Joachim Nagel signalled that additional tightening might be needed because the inflation challenge had not been fully resolved. He also stressed that policy choices would depend on the economic data available at each meeting.

Watching for energy costs to spread

Olli Rehn, Finland’s central bank governor and an ECB policymaker, said officials would monitor whether energy inflation was feeding into wider price increases and wage demands. These so-called second-round effects can make an initial energy shock harder to contain.

Rehn said there were no signs of those effects so far, while emphasising the need for continued vigilance. The distinction matters: the risk of more persistent inflation remains a policy concern, rather than an outcome he said had already materialised.