Yet MORE rate cuts can’t calm ‘risky’ eurozone, warns ECB boss Christine Lagarde

By HUGO DUNCAN

Updated: 22:00 GMT, 6 March 2025

Christine Lagarde yesterday warned ‘risks are all over the place’ as a sixth interest rate cut in the eurozone failed to quell the storm raging on bond markets.

As investors grappled with a changing world order under US President Donald Trump, the European Central Bank (ECB) cut rates in the single-currency bloc from 2.75 per cent to 2.5 per cent.

But borrowing costs surged higher on European bond markets with yields up in Germany, France, Italy and Spain – as well as the UK. Lower interest rates tend to lower bond yields.

But financial market borrowing costs are rising amid fears over US tariffs affecting inflation and European pledges to ramp up defence spending after Trump’s Oval Office bust-up with Ukrainian leader Volodymyr Zelensky.

Germany’s plan to tear up its fiscal rules to upgrade its infrastructure and free cash for massive rearmament has put rocket-boosters under bond yields.

German borrowing costs clocked up their biggest one-day rise since 1990 after incoming chancellor Friedrich Merz unveiled his debt-fuelled spending plans.

Uncertainty: European Central Bank boss Christine Lagarde (pictured) warned over the rapidly changing political situation

That saw the ten-year bund yield jump from 2.5 per cent to 2.8 per cent. It topped 2.9 per cent yesterday, while the equivalent on UK gilts rose to 4.8 per cent from below 4.5 per cent a week ago.

‘From one day to the other, the situation changes dramatically,’ said Lagarde (pictured). ‘You just name it, risks are all over the place. 

‘We have huge uncertainty. Some people used the adjective “phenomenal”.’ The ECB cut interest rates for the sixth time in nine months. Analysts noted that further cuts may not be possible due to tariffs and increased spending.

Lindsay James, investment strategist at Quilter, said: ‘The ECB is likely to be fairly cautious of treading such new ground and higher interest rates may prevail.’

Carsten Brzeski, global head of macro at ING, also said: ‘With the increased uncertainty and the prospects of large fiscal stimulus, the ECB’s direction of travel is no longer as clear as it was.’

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Yet MORE rate cuts can’t calm ‘risky’ eurozone, warns ECB boss Christine Lagarde

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