ECB's Lagarde says bond selloff will slow inflation

By Francesco Canepa

BANGKOK, Oct 17 (Reuters) - A selloff in bonds is making borrowing more expensive in the euro zone, curbing economic growth and ultimately inflation, European Central Bank president Christine Lagarde said on Saturday.

Bond yields around the world have surged in recent weeks, with debt-laden France among the hardest hit, on the back of worries about debt and inflation as well as growing competition for credit from AI investments.

Lagarde said this would make it harder than the ECB had projected last month for consumers to absorb higher fuel prices from the Iran war.

"While growth has been resilient, financing conditions have tightened, with long-term interest rates rising notably since our last meeting," Lagarde told fellow central bankers and finance ministers gathering in Bangkok. "This will slow growth and reduce pass-through by more than projected in our September exercise."

The ECB has raised interested rates twice in the last four months and a further hike is expected in December, which would take its policy rate to 2.75% — a level it considers restrictive, or curtailing economic activity.

Fellow ECB policymaker Joachin Nagel hinted at more policy tightening ahead, although he added that the central bank would decide at each meeting based on incoming data.

"We are fighting against inflation, I'm of the opinion that the job is not done so far," the Bundesbank president told a DZ Bank event in the Thai capital. "I do see that maybe we have to do more."

Speaking alongside Nagel, his Finnish colleague Olli Rehn said the ECB would watch out for "second-round effects" from energy inflation on other prices and wages.

"There is no sign of second-round effects, but we will stay vigilant because they might creep in quietly like a cat in socks," Rehn said.

(Editing by John Mair and Tom Hogue; Editing by Hugh Lawson)