European Central Bank President Christine Lagarde said on Monday that the recent significant rise in long-term bond yields will dampen economic growth in the euro area and weaken the extent to which elevated energy costs pass through into overall inflation.

Amid another surge in energy prices, this factor could reduce the need for the ECB to tighten monetary policy further and aggressively.

Speaking to members of the European Parliament in Brussels, Lagarde said that although euro area economic growth has shown resilience, long-term interest rates have risen markedly since the ECB's last policy meeting.

"This will slow economic growth and make the pass-through of energy costs to inflation lower than we expected at the time of our September projections," she said. She noted that no clear "second-round effects" on inflation have emerged so far, so the ECB should take "measured responses" as appropriate to ensure inflation is brought under control.

Lagarde's latest remarks come as ECB officials weigh whether further rate increases are needed. The conflict in the Middle East has pushed energy prices higher, and policymakers worry that persistently rising energy costs could gradually spread into broader goods and services prices and further fuel wage demands, making inflationary pressure more enduring.

At the same time, global bond markets have recently suffered a sell-off, with long-term yields continuing to climb. For some euro area member states with weaker fiscal positions, rising financing costs are particularly concerning. On the other hand, higher market interest rates themselves also tighten financial conditions and dampen investment and consumption, thereby to some extent acting like monetary policy tightening.

Data due this week are expected to show that euro area inflation jumped to 3.7% in September from 3.2% in August, reaching a relatively high level in recent years and moving further away from the ECB's 2% inflation target. Meanwhile, euro area consumers' expectations for future price increases rose again last month, intensifying policymakers' concerns about inflation persistence.

As hopes for a short-term breakthrough in the Middle East situation faded, international oil prices rose again on Monday, reigniting investors' worries about rising inflation. Interest rate markets currently expect that, after the ECB's two rate hikes so far, its deposit rate will be raised by a cumulative nearly 100 basis points over the next year, equivalent to about four increases of 25 basis points each.

Lagarde's remarks show that the ECB is currently facing two opposing forces. On one hand, rising energy prices and higher inflation expectations increase the pressure for further rate hikes; on the other hand, surging bond yields have already tightened financial conditions on their own and may weigh on economic growth and inflation pass-through. This requires the ECB to more carefully weigh inflation risks against downward economic pressure in future policy adjustments.