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June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's declaration after the bank's policy meeting 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 decided to reduce the 3 key ECB interest rates by 25 basis points. In particular, the decision to reduce the deposit center rate - the rate through which we steer the monetary policy stance - is based upon 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 forecasts, headline inflation is set to average 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The down revisions compared with the March forecasts, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower presumptions for energy rates and a more powerful euro. Staff expect inflation leaving out energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same because March.

Staff see genuine GDP development averaging 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 reflects a more powerful than anticipated first quarter integrated with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on business financial investment and exports, specifically in the brief term, rising federal government investment in defence and will increasingly support development over the medium term. Higher real earnings and a robust labour market will enable homes to invest more. Together with more favourable funding conditions, this must make the economy more resistant to worldwide shocks.

In the context of high unpredictability, staff also assessed a few of the systems by which different trade policies could impact development and inflation under some alternative illustrative scenarios. These circumstances will be published with the personnel forecasts on our website. Under this circumstance analysis, a more escalation of trade tensions over the coming months would result in growth and inflation being listed below the baseline forecasts. By contrast, if trade tensions were solved with a benign result, development and, to a lower extent, inflation would be higher than in the baseline projections.

Most steps of underlying inflation recommend that inflation will settle at around our two percent medium-term target on a continual basis. Wage growth is still raised but continues to moderate noticeably, and revenues are partially buffering its effect on inflation. The concerns that increased uncertainty and an unstable market action to the trade stress in April would have a tightening influence on funding conditions have actually alleviated.

We are determined to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting technique to identifying the appropriate financial policy stance. Our rates of interest choices will be based on our assessment of the inflation outlook due to the incoming economic and financial information, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate path.

The decisions taken today are set out in a news release readily available on our website.

I will now outline in more information how we see the economy and inflation developing and will then explain our evaluation of monetary and financial conditions.

Economic activity

The economy grew by 0.3 per cent in the first quarter of 2025, according to Eurostat ´ s flash estimate. Unemployment, at 6.2 per cent in April, is at its lowest level considering that the launch of the euro, and work grew by 0.3 per cent 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 potential customers in the near term. While manufacturing has actually reinforced, partly because trade has actually been brought forward 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 exact same time, several elements are keeping the economy durable and needs to support growth over the medium term. A strong labour market, rising real earnings, robust economic sector balance sheets and easier financing conditions, in part due to the fact that of our previous rate of interest cuts, should all assist consumers and firms withstand the fallout from a volatile global environment. Recently announced measures to step up defence and infrastructure financial investment ought to also reinforce development.

In the present geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro location economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its propositions, including on simplification, ought to be swiftly embraced. This consists of finishing the savings and financial investment union, following a clear and ambitious timetable. It is also essential to quickly establish the legislative framework to prepare the ground for the potential intro 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 strategic financial investment.

Inflation

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

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour costs are gradually moderating, as shown by incoming data on worked out wages and readily available nation information on compensation per staff member. The ECB ´ s wage tracker points to a further easing of worked out wage development in 2025, while the personnel projections see wage development falling to below 3 percent in 2026 and 2027. While lower energy prices 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, likely showing news about trade tensions. But the majority of steps 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 financial growth remain slanted to the downside. A further escalation in worldwide trade tensions and associated uncertainties might decrease euro area development by moistening exports and dragging down investment and consumption. A deterioration in financial market belief could cause tighter financing conditions and greater threat aversion, and confirm and families less willing to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the terrible dispute in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical tensions were solved swiftly, this might raise sentiment and spur activity. A further increase in defence and facilities costs, together with productivity-enhancing reforms, would likewise include to growth.

The outlook for euro location inflation is more unpredictable than usual, as an outcome of the unpredictable worldwide trade policy environment. Falling energy costs and a stronger euro could put additional downward pressure on inflation. This could be strengthened if higher tariffs caused lower need for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions might cause higher volatility and risk aversion in financial 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 rates and adding to capacity constraints in the domestic economy. An increase in defence and infrastructure spending could likewise raise inflation over the medium term. Extreme weather occasions, and the unfolding climate crisis more broadly, might drive up food prices by more than anticipated.

Financial and monetary conditions

Risk-free interest rates have actually stayed broadly the same considering that our last meeting. Equity prices have increased, and corporate bond spreads have narrowed, in response to more favorable news about worldwide trade policies and the enhancement in worldwide risk sentiment.

Our past rate of interest cuts continue to make business loaning less pricey. The typical interest rate on new loans to companies decreased to 3.8 per cent in April, from 3.9 per cent in March. The cost of issuing market-based debt was unchanged at 3.7 percent. Bank providing to firms continued to reinforce slowly, growing by an annual rate of 2.6 percent in April after 2.4 per cent in March, while corporate bond issuance was subdued. The typical rate of interest on new mortgages stayed at 3. 3 percent in April, while development in mortgage lending increased to 1.9 percent.

In line with our monetary policy strategy, the Governing Council thoroughly assessed the links in between financial policy and financial stability. While euro location banks stay resilient, broader monetary stability risks remain elevated, in particular owing to highly uncertain and unpredictable global trade policies. Macroprudential policy stays the very first line of defence against the build-up of financial vulnerabilities, improving resilience and preserving macroprudential space.

The Governing Council today chose to lower the three key ECB interest rates by 25 basis points. In particular, the decision to reduce the deposit center rate - the rate through which we steer the financial policy stance - is based on our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are identified to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting method to figuring out the appropriate financial policy stance. Our rate of interest choices 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 all set 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 financial policy transmission. (Compiled by Toby Chopra)
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