June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's declaration after the bank's policy conference on Thursday:
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Link to statement 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 welcome you to our press conference.

The Governing Council today decided to decrease the three essential ECB rates of interest by 25 basis points. In specific, the choice to decrease the deposit facility rate - the rate through which we guide the monetary policy stance - is based on our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.

Inflation is presently at around our 2 percent medium-term target. In the baseline of the new Eurosystem staff projections, heading inflation is set to average 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The down revisions compared to the March projections, by 0.3 portion points for both 2025 and 2026, generally show lower assumptions for energy costs and a more powerful euro. Staff expect inflation excluding energy and food to average 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged considering that March.

Staff see real GDP development averaging 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development forecast for 2025 reflects a more powerful than expected 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 investment and exports, especially in the short-term, rising government financial investment in defence and facilities will increasingly support growth over the medium term. Higher genuine earnings and a robust labour market will permit families to invest more. Together with more favourable funding conditions, this ought to make the economy more resilient to worldwide shocks.

In the context of high unpredictability, personnel likewise assessed some of the systems by which various trade policies might affect development and inflation under some alternative illustrative circumstances. These circumstances will be published with the personnel forecasts on our website. Under this scenario analysis, a further escalation of trade stress over the coming months would lead to growth and inflation being listed below the standard forecasts. By contrast, if trade tensions were resolved with a benign result, growth and, to a lesser degree, inflation would be greater than in the baseline projections.

Most procedures of underlying inflation recommend that inflation will settle at around our 2 per cent medium-term target on a continual basis. Wage development is still raised but continues to moderate visibly, and earnings are partly buffering its effect on inflation. The issues that increased unpredictability and an unpredictable market action to the trade tensions in April would have a tightening up influence on financing conditions have actually eased.

We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in present conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate choices will be based on our assessment of the inflation outlook in light 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 specific rate course.

The decisions taken today are set out in a press release readily available on our site.

I will now detail in more detail how we see the economy and inflation developing and will then discuss our assessment of financial and monetary conditions.

Economic activity

The economy grew by 0.3 percent in the very first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 percent in April, is at its lowest level since the launch of the euro, and employment grew by 0.3 percent in the very first quarter of the year, according to the flash quote.

In line with the personnel projections, survey data point overall to some weaker prospects in the near term. While production has actually strengthened, partly due to the fact that trade has been brought forward in anticipation of greater tariffs, the more locally oriented services sector is slowing. Higher tariffs and a more powerful euro are expected to make it harder for firms to export. High unpredictability is expected to weigh on financial investment.

At the same time, several elements are keeping the economy resistant and needs to support development over the medium term. A strong labour market, rising real incomes, robust economic sector balance sheets and simpler funding conditions, in part since of our past rate of interest cuts, ought to all help consumers and companies hold up against the fallout from an unpredictable global environment. Recently revealed measures to step up defence and facilities financial investment ought to likewise bolster development.

In the present geopolitical environment, it is much more immediate for fiscal and structural policies to make the euro location economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its proposals, consisting of on simplification, must be promptly adopted. This includes completing the cost savings and investment union, following a clear and ambitious timetable. It is likewise crucial to rapidly establish the legislative structure to prepare the ground for the possible intro of a digital euro. Governments should ensure sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising vital growth-enhancing structural reforms and strategic financial investment.

Inflation

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

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are slowly moderating, as indicated by inbound information on negotiated salaries and offered country information on payment per employee. The ECB ´ s wage tracker indicate a more easing of negotiated wage development in 2025, while the personnel projections see wage development falling to listed below 3 percent in 2026 and 2027. While lower energy rates and a stronger euro are putting downward pressure on inflation in the near term, inflation is expected to return to target in 2027.

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

Risk assessment

Risks to economic development stay slanted to the downside. A further escalation in global trade tensions and associated unpredictabilities might lower euro location growth by moistening exports and dragging down investment and consumption. A degeneration in monetary market belief could lead to tighter funding conditions and higher danger aversion, and make firms and families less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the awful conflict in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical stress were dealt with promptly, this could lift sentiment and spur activity. A further increase in defence and facilities spending, together with productivity-enhancing reforms, would likewise add to development.

The outlook for euro area inflation is more unsure than typical, as a result of the unstable worldwide trade policy environment. Falling energy rates and a stronger euro could put more downward pressure on inflation. This might be reinforced if greater tariffs led to lower demand for euro area exports and to nations with overcapacity rerouting their exports to the euro area. Trade stress might result in greater volatility and threat hostility in monetary markets, which would weigh on domestic need and would therefore also lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by pushing up import costs and including to capacity restrictions in the domestic economy. An increase in defence and facilities spending might also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could increase food rates by more than anticipated.

Financial and financial conditions

Risk-free interest rates have actually remained broadly unchanged because our last conference. Equity costs have risen, and business bond spreads have narrowed, in action to more favorable news about worldwide trade policies and the enhancement in global risk belief.

Our previous rates of interest cuts continue to make corporate loaning more economical. The typical interest rate on brand-new loans to companies decreased to 3.8 per cent in April, from 3.9 per cent in March. The expense of providing market-based financial obligation was the same at 3.7 per cent. Bank providing to firms continued to strengthen slowly, growing by a yearly rate of 2.6 per cent in April after 2.4 per cent in March, while corporate bond issuance was controlled. The typical rate of interest on new mortgages remained at 3. 3 percent in April, while development in mortgage loaning increased to 1.9 percent.

In line with our monetary policy strategy, the Governing Council completely evaluated the links between monetary policy and monetary stability. While euro area banks stay resilient, broader financial stability dangers remain raised, in particular owing to extremely unsure and unpredictable global trade policies. Macroprudential policy remains the very first line of defence versus the accumulation of financial vulnerabilities, enhancing strength and protecting macroprudential area.

The Governing Council today decided to lower the three key ECB rate of interest by 25 basis points. In specific, the choice to decrease the deposit center rate - the rate through which we guide the monetary policy position - is based upon our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are figured out to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to figuring out the appropriate monetary policy position. Our rate of interest decisions will be based upon our evaluation of the inflation outlook due to the inbound economic and monetary data, 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 adjust all of our instruments within our required to guarantee that inflation stabilises sustainably at our medium-term target and to protect the smooth performance of financial policy transmission. (Compiled by Toby Chopra)