Lagarde hints at possible ECB rate hike in December

what happened

European Central Bank President Christine Lagarde told The Yomiuri Shimbun that the bank may raise interest rates again at the Governing Council meeting scheduled for next month. She said inflation will remain high in the coming quarters, a development that worries her.

Lagarde said that, on today's information, the direction of policy would need significant changes to differ from her expectations. She stressed that decisions are made meeting by meeting based on data, so she could not promise a December hike. Headline inflation was 4% in October, energy inflation rose to 20.8%, and core inflation was 2.5%.

She also said she will step down in February, ahead of the expiry of her term in October next year, and pointed to the French presidential election next spring as a reason.

why it matters

For markets, the key point is the signal of possible tightening by the ECB. Expectations of further rate increases typically support the euro and weigh on bonds and rate-sensitive European equities. Energy-driven inflation remains the central factor in the central bank's decision.

market impact

Euro and European bonds: expectations of an ECB rate hike support the euro and pressure government bonds

• ▲Euro pressure up — expectations of tighter ECB policy raise yields on euro-denominated assets
• ▼German Bunds pressure down — expectations of higher ECB rates lift yields and push bond prices lower

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instruments