Lagarde Pushes Back on Market Rate-Hike Bets as Energy Costs Surge

European Central Bank President Christine Lagarde has pushed back against market expectations for aggressive interest rate hikes, saying borrowing costs do not move in tandem with oil and gas prices.

Speaking at a news conference in Dublin, Lagarde said energy prices affect other parts of the economy, including growth and consumption, and that the central bank weighs all these factors when setting policy.

Her remarks came hours after ECB Vice President Boris Vujcic also appeared to temper investor expectations, noting that the bank would consider a much broader set of economic indicators before deciding its next steps.

Financial markets currently price between three and four additional rate increases over the next year, on top of two moves already made in recent months. The bets have been driven by oil and gas prices hovering near the ECB's "adverse" scenario, which could push inflation close to 4% by the end of the year.

Lagarde indicated that the ECB still considers a "measured" response sufficient to address the bloc's inflation problem. "We are taking a measured response to the current situation," she said, adding that the bank was well positioned to assess incoming data and information.

She also played down concerns about rising government borrowing costs, describing them as primarily a reflection of global developments rather than local issues. "We don't see any disorderly movements," Lagarde said, noting that the trend affects bonds globally, particularly at the long end of the curve, for multiple reasons.