A jump in French borrowing costs is complicating the European Central Bank’s rate decision Thursday, with euro-area inflation above target and higher bond yields threatening to restrain growth.
Reuters reported Monday that the yield premium on French 10-year bonds over German debt reached 167 basis points, up from 92 basis points at the ECB’s September meeting. Agence France Trésor listed France’s 10-year reference rate at 5.05% on Oct. 23. Reuters linked the bond selloff to political strain and fragile public finances.
The ECB raised its three key interest rates by 25 basis points in September, bringing its deposit facility rate to 2.50%. Reuters reported that markets widely expect the bank to leave that rate unchanged this week.
Eurostat said annual euro-area inflation rose to 3.8% in September from 3.2% in August, moving further above the ECB’s 2% target. Energy accounted for 1.71 percentage points of September’s rate. Inflation excluding energy, food, alcohol and tobacco increased to 2.5% from 2.4%.
The ECB said in September that turmoil in bond markets could restrict credit and weaken demand. It also identified a risk that higher energy costs would push up prices beyond energy.
The ECB’s September projections put euro-area growth at 0.9% in 2026 and 1.4% in 2027.
The ECB’s Transmission Protection Instrument (TPI) allows it to buy eligible bonds when disorderly market conditions interfere with monetary policy. The tool’s rules include fiscal and macroeconomic criteria; a wider yield gap does not automatically trigger purchases.
Reuters reported that markets have priced in at least two rate increases by mid-2027. The ECB has left future moves dependent on incoming data.
Reuters separately reported that the World Economic Forum board could consider ECB President Christine Lagarde for its chair as early as November, citing people close to the organization. Reuters said no decision had been made. The ECB lists Lagarde’s term through Oct. 31, 2027.
The ECB is scheduled to announce its decision at 9:15 a.m. ET (13:15 UTC) Thursday, followed by a news conference at 9:45 a.m. ET (13:45 UTC). Eurostat’s next inflation flash estimate, covering October, is due Nov. 4.
