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

Link to declaration on ECB site: 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 invite you to our press conference.

The Governing Council today decided to decrease the 3 crucial ECB rate of interest by 25 basis points. In specific, the decision to reduce the deposit facility rate - the rate through which we guide the monetary policy stance - is based upon our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our 2 per cent medium-term target. In the baseline of the new Eurosystem staff projections, heading inflation is set to average 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The downward modifications compared to the March projections, by 0.3 percentage points for both 2025 and 2026, mainly show lower presumptions for energy rates and a stronger euro. Staff expect inflation omitting energy and food to average 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged given that March.

Staff see genuine GDP development balancing 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 percent in 2027. The unrevised growth forecast for 2025 shows a more powerful than anticipated first quarter integrated with weaker prospects for the rest of the year. While the uncertainty surrounding trade policies is anticipated to weigh on company investment and exports, specifically in the short-term, increasing federal government financial investment in defence and infrastructure will significantly support growth over the medium term. Higher real incomes and a robust labour market will permit families to spend more. Together with more favourable funding conditions, this need to make the economy more durable to international shocks.

In the context of high uncertainty, personnel also evaluated a few of the mechanisms by which different trade policies might affect development and inflation under some alternative illustrative scenarios. These circumstances will be published with the personnel projections on our site. Under this situation analysis, a further 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 outcome, growth and, to a lesser extent, inflation would be greater than in the baseline forecasts.

Most measures of underlying inflation suggest that inflation will settle at around our two percent medium-term target on a sustained basis. Wage development is still elevated however continues to moderate visibly, and revenues are partly buffering its effect on inflation. The concerns that increased uncertainty and an unstable market reaction to the trade stress in April would have a tightening influence on financing conditions have relieved.

We are identified to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the suitable financial policy position. Our interest rate choices will be based on our evaluation of the inflation outlook because of the incoming financial and monetary information, 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 news release readily available on our site.

I will now outline in more detail how we see the economy and inflation establishing and will then discuss our assessment of financial 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 percent in April, is at its lowest 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 estimate.

In line with the staff forecasts, survey information point general to some weaker prospects in the near term. While production has enhanced, partly due to the fact that trade has been advanced in anticipation of greater tariffs, the more locally oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for companies to export. High unpredictability is anticipated to weigh on financial investment.

At the exact same time, a number of elements are keeping the economy durable and needs to support growth over the medium term. A strong labour market, increasing genuine earnings, robust personal sector balance sheets and simpler financing conditions, in part since of our previous rates of interest cuts, must all assist customers and companies stand up to the fallout from a volatile worldwide environment. Recently announced steps to step up defence and facilities financial investment must likewise reinforce development.

In today geopolitical environment, it is much more immediate for fiscal and structural policies to make the euro area economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, consisting of on simplification, need to be promptly adopted. This consists of finishing the cost savings and investment union, following a clear and enthusiastic schedule. It is likewise important to quickly develop the legislative framework to prepare the ground for the prospective introduction of a digital euro. Governments ought to guarantee sustainable public finances in line with the EU ´ s financial governance structure, while prioritising important growth-enhancing structural reforms and tactical financial investment.

Inflation
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Annual inflation declined to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy cost inflation remained at -3.6 percent. Food price inflation rose to 3.3 percent, from 3.0 per cent the month before. Goods inflation was unchanged at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 percent in April. Services inflation had actually leapt in April mainly because rates for travel services around the Easter holidays went up by more than anticipated.

Most indicators of underlying inflation recommend that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are slowly moderating, as indicated by incoming data on negotiated salaries and available nation data on compensation per employee. The ECB ´ s wage tracker points to a further easing of worked out wage development in 2025, while the staff forecasts see wage development falling to below 3 per cent 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 expected to go back to target in 2027.

Short-term consumer inflation expectations edged up in April, most likely reflecting news about trade stress. But the majority of steps of expectations continue to stand at around 2 per cent, which supports the stabilisation of inflation around our target.
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Risk assessment

Risks to financial development stay tilted to the disadvantage. A further escalation in international trade tensions and associated unpredictabilities might decrease euro location development by moistening exports and dragging down financial investment and usage. A deterioration in financial market belief might lead to tighter financing conditions and greater threat aversion, and confirm and households less prepared to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the tragic dispute in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical stress were fixed swiftly, this could raise belief and spur activity. A further boost in defence and infrastructure spending, together with productivity-enhancing reforms, would also contribute to development.

The outlook for euro location inflation is more uncertain than normal, as a result of the unpredictable global trade policy environment. Falling energy rates and a more powerful euro might put additional downward pressure on inflation. This might be reinforced if greater tariffs caused lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions might cause greater volatility and threat aversion in monetary markets, which would weigh on domestic demand and would consequently also lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by pushing up import rates and adding to capability restraints in the domestic economy. A boost in defence and infrastructure costs might likewise raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, might increase food rates by more than anticipated.

Financial and financial conditions

Risk-free rate of interest have actually stayed broadly unchanged given that our last meeting. Equity prices have actually increased, and corporate bond spreads have narrowed, in response to more favorable news about international trade policies and the improvement in worldwide danger sentiment.

Our past rate of interest cuts continue to make business borrowing cheaper. The average rates of interest on brand-new loans to companies declined to 3.8 percent in April, from 3.9 per cent in March. The expense of issuing market-based debt was unchanged at 3.7 percent. Bank providing to companies continued to enhance gradually, growing by an annual rate of 2.6 per cent in April after 2.4 percent in March, while business bond issuance was subdued. The average rates of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage loaning increased to 1.9 percent.

In line with our monetary policy technique, the Governing Council completely evaluated the links in between monetary policy and monetary stability. While euro area banks remain durable, broader monetary stability threats stay raised, in specific owing to extremely uncertain and unpredictable worldwide trade policies. Macroprudential policy remains the first line of defence against the build-up of monetary vulnerabilities, improving resilience and preserving macroprudential space.

The Governing Council today decided to reduce the three key ECB interest rates by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we steer the monetary policy stance - is based on our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are identified to guarantee that inflation stabilises sustainably at our 2 percent medium-term target. Especially in present conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting technique to figuring out the proper monetary policy position. Our rates of interest decisions will be based on our evaluation of the inflation outlook in light of the inbound economic and monetary information, the dynamics 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 required to make sure that inflation stabilises sustainably at our medium-term target and to maintain the smooth performance of monetary policy transmission. (Compiled by Toby Chopra)