Lagarde warns higher bond yields will curb growth and inflation in the euro area

At the annual IMF and World Bank conference in Bangkok, ECB President Christine Lagarde highlighted that the latest climb in bond market rates is pushing up loan costs throughout the euro area, thereby restraining both growth and inflation. She noted that long-term yields have risen sharply since the ECB’s most recent meeting, tightening financing conditions for businesses and households. Lagarde warned that the higher borrowing costs could impede companies’ ability to shift increased expenses, including fuel price spikes tied to the Iran war, onto customers.

The surge in yields reflects worries about public debt, persistent inflation and the capital required for AI investments. Meanwhile, German Bundesbank President Joachim Nagel signaled that further rate moves may be needed, and Finnish central-bank chief Olli Rehn cautioned about possible delayed wage pressures from rising energy prices, though no clear signs have emerged yet.