Financing is becoming more expensive: Lagarde sees high bond interest rates as an economic risk

Interest rates on the bond markets have recently been rising. This makes it more difficult for states and companies to finance themselves. In the ECB’s view, this will ultimately slow down growth. The central bank also warns of further effects.

According to ECB President Christine Lagarde, the recent rise in interest rates on the bond market is making borrowing more expensive in the eurozone and thus dampening economic growth and inflation. Financing conditions have tightened as long-term interest rates have risen noticeably since the recent meeting of the European Central Bank (ECB), Lagarde said at the annual meeting of the International Monetary Fund (IMF) and the World Bank in Bangkok. This will slow down growth. It will also make it more difficult for companies to pass on higher costs - for example for fuel as a result of the Iran war - to consumers.

Yields on government bonds have recently risen sharply worldwide, which is driving up interest rates on loans. The reasons include concerns about national debt and inflation as well as a high capital requirement for investments in artificial intelligence (AI). The ECB has raised key interest rates twice in the past four months. A further increase to 2.75 percent is expected for December. Above this level, monetary policy is considered restrictive and therefore slows down economic activity.

Bundesbank President Joachim Nagel indicated further interest rate steps at a DZ Bank event in the Thai capital. The fight against inflation is not over yet and the ECB may need to do more, he said. Finnish central bank chief Olli Rehn emphasized that monetary authorities must be vigilant against so-called second-round effects. This means that rising energy prices lead to higher wage demands with a time lag and, as a result, to permanently high inflation. So far there are no signs of this, said Rehn. However, these could sneak in quietly as if on velvet paws.