European Central Bank President Christine Lagarde said on the 18th that the ECB's policy interest rate does not move in tandem with oil and natural gas prices, pushing back against market expectations of significant rate hikes in response to surging energy prices. Speaking at a press conference in Dublin, Lagarde said, "Interest rates do not move in tandem with energy prices," explaining that the impact of energy prices and inflation also extends to other factors such as growth and consumption, and that "we take all of these factors into account." She also said the ECB is "taking a cautious approach to the current situation," and expressed the view that it is well positioned to respond based on more data, information, and figures, and to properly assess changes. Regarding concerns about rising government borrowing costs, she noted that this is not a regional issue but mainly reflects global developments, and that "we are not seeing disorderly moves," describing it as a global trend affecting all bonds, particularly long-dated government bonds. Financial markets are currently pricing in the view that the ECB will carry out three to four more rate hikes over the next year, on top of the two hikes already implemented in recent months, with oil and gas prices both near levels consistent with the ECB's "adverse" scenario and potentially pushing inflation up to nearly 4% by the end of the year.
Lagarde pushes back against market expectations of three to four more ECB rate hikes, signaling a slower tightening path.
Reduced rate-hike expectations lower the expected path of German yields; Lagarde also says rising borrowing costs are a global trend, not disorderly.
