Lagarde says tighter financing will slow euro zone growth; September inflation confirmed at 3.8%

European Central Bank President Christine Lagarde said on Saturday 17 October that rising long-term interest rates have made borrowing more expensive in the euro zone, which will slow growth and limit the spread of higher energy costs to other prices.

“While growth has been resilient, financing conditions have tightened, with long-term interest rates rising notably since our last meeting,” Lagarde told central bankers and finance ministers at the IMF and World Bank meetings in Bangkok, according to a report published by CNBC. “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 past four months, the report said. Markets expect another rise in December, which would take its policy rate to 2.75%.

Bundesbank President Joachim Nagel said the ECB would decide at each meeting based on data. “I’m of the opinion that the job is not done so far,” he said. “I do see that maybe we have to do more.” Finland’s Olli Rehn said there was “no sign of second-round effects” from energy prices on wages and other prices, but that the bank would stay vigilant.

Eurostat confirmed on Friday that annual inflation in the euro area was 3.8% in September, up from 3.2% in August and in line with its earlier flash estimate. Energy prices rose 18.9% from a year earlier. Inflation excluding energy, food, alcohol and tobacco was 2.5%.

Eurostat is scheduled to publish its flash estimate for October on 4 November.