Inflation still ‘way too high’ – bond yields are picking up

Christine Lagarde at the World Economic Forum in Davos

The ECB has raised interest rates four times since July 2022.

(Photo: dpa)

davos European Central Bank (ECB) President Christine Lagarde has described euro-zone inflation as still “way too high” despite the recent fall and a string of rate hikes. At the World Economic Forum in Davos on Thursday, Lagarde made it clear that the central bank must remain “on course” in the fight against inflation.

Most recently, at the interest rate meeting in December, the ECB President spoke out in favor of further interest rate hikes of 0.50 percentage points each in order to get inflation under control and bring the inflation rate back up to the ECB’s medium-term target of two percent.

Lagarde’s words drove investors out of stocks and bonds. In return, the yields of European stocks are rising. The ten-year Bund is yielding at 2.0790 percent after 2.008 percent on Wednesday. The Dax widened its losses, it was 1.5 percent below 15,000 points in the early afternoon.

Recently, falling inflation rates had fueled speculation that the major central banks would slow down interest rates on the financial markets. Bond yields generally move in the same direction as interest rates.

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At the meeting in Davos, the Dutch central bank president and ECB council member Klaas Knot confirmed this assessment. “I think we’re going to be in tightening mode at least until mid-year,” Knot told CNBC.


The day before, French Council member Francois Villeroy de Galhau had spoken out in favor of further significant interest rate hikes. Previously, speculation about a possible interest rate hike of just 0.25 points in March had caused price movements on the markets.

The ECB has raised interest rates four times since July 2022. The March meeting is the next but one rate meeting. The next decision will be made in February.

Inflation in the euro zone has weakened somewhat recently. At an annual rate of 9.2 percent in December, inflation is just below the record high of over 10 percent reached in October.

More: Interest rates in Japan remain low – investors are once again triggering significant market movements

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