A selloff in bonds is making borrowing more expensive in the euro zone, curbing economic growth and ultimately inflation, European Central Bank president Christine Lagarde said on Saturday.
Bond yields around the world have surged in recent weeks, with debt-laden France among the hardest hit, on the back of worries about debt and inflation as well as growing competition for credit from AI investments.
Lagarde said this would make it harder than the ECB had projected last month for consumers to absorb higher fuel prices from the Iran war.
"While growth has been resilient, financing conditions have tightened, with long-term interest rates rising notably since our last meeting," Lagarde told fellow central bankers and finance ministers gathering in Bangkok. "This will slow growth and reduce pass-through by more than projected in our September exercise."
The ECB has raised interest rates twice in the last four months and a further hike is expected in December, which would take its policy rate to 2.75% — a level it considers restrictive, or curtailing economic activity.