Lagarde says rising long-term rates will slow euro area growth
Traders have cut bets on an October rate rise after the remarks, with markets now pricing a hike at under 40%, Bloomberg reports.
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Chart: ECB deposit facility rate
The euro area's benchmark interest rate stood at 2.65%, according to Trading Economics. After Lagarde's remarks, traders lowered the odds of another increase at the ECB's next meeting to below 40%, according to allweatherfinance.com, from higher levels before the comments.
Lagarde's framing, that market-driven moves in long-term borrowing costs are already doing some of the central bank's tightening work, points the other way: toward less urgency for further hikes.
That comes as fellow policymaker Gabriel Makhlouf said on September 23 that he was uneasy with inflation projections running above 3%. Energy costs pushing price growth toward the ECB's downside scenario, combined with Lagarde's comments, suggest policymakers increasingly think higher market yields could restrain inflation without more rate rises, even as the inflation outlook stays unsettled.