June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's declaration after the bank's policy conference on Thursday:

Link to statement on ECB website: https://www.ecb.europa.eu/press/press_conference/monetary-policy-statement/2025/html/ecb.is250605~f00a36ef2b.en.html

Good afternoon, the Vice-President and I welcome you to our press conference.

The Governing Council today chose to lower the 3 crucial ECB rates of interest by 25 basis points. In specific, the choice to decrease the deposit facility rate - the rate through which we steer the financial policy stance - is based upon our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.

Inflation is presently at around our two per cent medium-term target. In the standard of the brand-new Eurosystem personnel forecasts, heading inflation is set to average 2.0 percent in 2025, 1.6 percent in 2026 and 2.0 percent in 2027. The downward modifications compared to the March projections, by 0.3 portion points for both 2025 and 2026, mainly show lower presumptions for energy costs and a stronger euro. Staff anticipate inflation omitting energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged since March.

Staff see genuine GDP growth balancing 0.9 percent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth projection for 2025 shows a stronger than anticipated first quarter combined with weaker potential customers for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on company financial investment and exports, especially in the short-term, rising federal government financial investment in defence and facilities will progressively support growth over the medium term. Higher genuine earnings and a robust labour market will allow homes to invest more. Together with more favourable funding conditions, this should make the economy more resistant to worldwide shocks.

In the context of high unpredictability, personnel also assessed some of the systems by which various trade policies could impact growth and inflation under some alternative illustrative situations. These situations will be published with the personnel projections on our website. Under this scenario analysis, a more escalation of trade tensions over the coming months would lead to development and inflation being below the standard projections. By contrast, if trade stress were solved with a benign result, growth and, to a lesser level, inflation would be higher than in the baseline projections.

Most steps of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is still elevated but continues to moderate visibly, and earnings are partly buffering its effect on inflation. The issues that increased unpredictability and a volatile market response to the trade stress in April would have a tightening effect on funding conditions have actually alleviated.

We are determined to guarantee that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting method to figuring out the suitable monetary policy position. Our interest rate choices will be based on our evaluation of the inflation outlook in light of the incoming financial and monetary data, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

The choices taken today are set out in a press release available on our website.

I will now describe in more detail how we see the economy and inflation establishing and will then describe our evaluation of monetary and financial conditions.

Economic activity

The economy grew by 0.3 percent in the first quarter of 2025, according to Eurostat ´ s flash price quote. Unemployment, at 6.2 per cent in April, is at its least expensive level because the launch of the euro, and work grew by 0.3 percent in the first quarter of the year, according to the flash price quote.

In line with the personnel projections, survey data point overall to some weaker prospects in the near term. While production has actually reinforced, partly due to the fact that trade has been advanced in anticipation of higher tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a stronger euro are expected to make it harder for firms to export. High uncertainty is expected to weigh on investment.

At the very same time, several elements are keeping the economy resilient and needs to support growth over the medium term. A strong labour market, increasing genuine incomes, robust private sector balance sheets and easier financing conditions, in part because of our previous rate of interest cuts, need to all assist customers and companies endure the fallout from an unpredictable international environment. Recently announced measures to step up defence and facilities investment must also bolster growth.

In today geopolitical environment, it is a lot more urgent for fiscal and structural policies to make the euro location economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its proposals, including on simplification, ought to be swiftly adopted. This consists of finishing the savings and investment union, following a clear and enthusiastic schedule. It is also important to quickly develop the legislative framework to prepare the ground for the potential introduction of a digital euro. Governments must guarantee sustainable public finances in line with the EU ´ s financial governance framework, while prioritising essential growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy cost inflation stayed at -3.6 per cent. Food cost inflation rose to 3.3 per cent, from 3.0 per cent the month before. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 per cent in April. Services inflation had leapt in April primarily since costs for travel services around the Easter vacations increased by more than .

Most indications of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour expenses are gradually moderating, as shown by incoming information on negotiated earnings and available nation data on payment per employee. The ECB ´ s wage tracker indicate a further easing of negotiated wage growth in 2025, while the staff forecasts see wage development falling to listed below 3 percent in 2026 and 2027. While lower energy rates and a more powerful euro are putting downward pressure on inflation in the near term, inflation is anticipated to go back to target in 2027.

Short-term customer inflation expectations edged up in April, most likely showing news about trade tensions. But most steps of longer-term inflation expectations continue to stand at around 2 percent, which supports the stabilisation of inflation around our target.

Risk evaluation

Risks to financial development stay slanted to the drawback. An additional escalation in worldwide trade tensions and associated unpredictabilities might lower euro location growth by moistening exports and dragging down financial investment and consumption. A degeneration in monetary market belief could lead to tighter financing conditions and higher threat hostility, and make companies and families less going to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the tragic conflict in the Middle East, remain a significant source of unpredictability. By contrast, if trade and geopolitical stress were resolved promptly, this might raise sentiment and spur activity. A more boost in defence and infrastructure spending, together with productivity-enhancing reforms, would also add to growth.

The outlook for euro location inflation is more unsure than normal, as a result of the unstable global trade policy environment. Falling energy prices and a stronger euro could put additional down pressure on inflation. This might be strengthened if greater tariffs led to lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro area. Trade stress could result in higher volatility and danger aversion in monetary markets, which would weigh on domestic demand and would thus likewise lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by pushing up import prices and including to capability restraints in the domestic economy. An increase in defence and facilities spending might likewise raise inflation over the medium term. Extreme weather condition events, and the unfolding environment crisis more broadly, could increase food rates by more than anticipated.

Financial and financial conditions

Risk-free rates of interest have actually stayed broadly the same because our last meeting. Equity prices have risen, and corporate bond spreads have actually narrowed, in action to more positive news about international trade policies and the enhancement in global risk sentiment.

Our previous interest rate cuts continue to make business loaning cheaper. The average rate of interest on brand-new loans to firms decreased to 3.8 per cent in April, from 3.9 per cent in March. The cost of issuing market-based financial obligation was unchanged at 3.7 per cent. Bank providing to companies continued to reinforce slowly, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was suppressed. The average rates of interest on new mortgages remained at 3. 3 per cent in April, while development in mortgage loaning increased to 1.9 percent.

In line with our monetary policy technique, the Governing Council thoroughly evaluated the links between financial policy and monetary stability. While euro area banks remain resilient, broader financial stability risks remain raised, in specific owing to highly uncertain and unpredictable global trade policies. Macroprudential policy stays the first line of defence against the build-up of financial vulnerabilities, boosting durability and protecting macroprudential space.

The Governing Council today chose to lower the 3 essential ECB rates of interest by 25 basis points. In particular, the decision to decrease the deposit center rate - the rate through which we steer the financial policy position - is based on our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are figured out to guarantee that inflation stabilises sustainably at our 2 percent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting technique to identifying the appropriate financial policy position. Our rates of interest decisions will be based upon our evaluation of the inflation outlook due to the incoming economic and financial data, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate course.

In any case, we stand ready to change all of our instruments within our mandate to guarantee that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)
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