June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's statement after the bank's policy conference on Thursday:
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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 reduce the 3 essential ECB rates of interest by 25 basis points. In particular, the choice to lower the deposit center rate - the rate through which we steer the monetary policy position - is based upon our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission.

Inflation is presently at around our two percent medium-term target. In the standard of the brand-new Eurosystem personnel forecasts, heading inflation is set to typical 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The downward revisions compared to the March forecasts, by 0.3 portion points for both 2025 and 2026, generally reflect lower presumptions for energy prices and a stronger 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 genuine GDP development averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 reflects a stronger than anticipated first quarter combined with weaker potential customers for the rest of the year. While the uncertainty surrounding trade policies is expected to weigh on company financial investment and exports, specifically in the short-term, increasing government financial investment in defence and infrastructure will significantly support development over the medium term. Higher genuine earnings and a robust labour market will enable households to spend more. Together with more beneficial funding conditions, this should make the economy more resistant to global shocks.

In the context of high uncertainty, personnel likewise assessed some of the systems by which various trade policies could affect development and inflation under some alternative illustrative circumstances. These scenarios will be released with the personnel forecasts on our site. Under this circumstance analysis, an additional escalation of trade tensions over the coming months would lead to growth and inflation being below the standard forecasts. By contrast, if trade stress were fixed with a benign outcome, growth and, to a lower level, inflation would be greater than in the baseline projections.

Most procedures of underlying inflation recommend that inflation will settle at around our two percent medium-term target on a continual basis. Wage growth is still elevated but continues to moderate visibly, and revenues are partially buffering its impact on inflation. The issues that increased uncertainty and an unpredictable market action to the trade stress in April would have a tightening up impact on funding conditions have reduced.

We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting technique to figuring out the appropriate financial policy position. Our rates of interest choices will be based on our assessment of the inflation outlook because of the inbound economic and financial information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

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

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

Economic activity

The economy grew by 0.3 per cent in the very first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 percent in April, is at its most affordable level considering that the launch of the euro, and work grew by 0.3 percent in the very first quarter of the year, according to the flash estimate.

In line with the staff forecasts, survey information point total to some weaker potential customers in the near term. While manufacturing has actually enhanced, partly because trade has actually been advanced in anticipation of higher tariffs, the more locally oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for firms to export. High uncertainty is expected to weigh on financial investment.

At the exact same time, a number of factors are keeping the economy resistant and should support development over the medium term. A strong labour market, increasing real incomes, robust economic sector balance sheets and simpler funding conditions, in part because of our previous rates of interest cuts, need to all help consumers and firms stand up to the fallout from an unpredictable worldwide environment. Recently revealed procedures to step up defence and infrastructure investment ought to also reinforce development.

In the present geopolitical environment, it is a lot more urgent for financial and structural policies to make the euro area economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its propositions, consisting of on simplification, must be swiftly embraced. This consists of completing the savings and investment union, following a clear and enthusiastic schedule. It is likewise crucial to quickly establish the legal framework to prepare the ground for the potential introduction of a digital euro. Governments need to make sure sustainable public financial resources in line with the EU ´ s economic governance structure, while prioritising essential growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation declined to 1.9 percent in May, from 2.2 percent in April, according to Eurostat ´ s flash price quote. Energy price inflation stayed at -3.6 percent. Food rate inflation increased to 3.3 per cent, from 3.0 percent the month previously. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 percent, from 4.0 percent in April. Services inflation had leapt in April generally due to the fact that costs for travel services around the Easter holidays went up by more than expected.

Most signs of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour costs are gradually moderating, as indicated by incoming data on negotiated earnings and available country information on settlement per employee. The ECB ´ s wage tracker points to an additional 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 prices and a stronger euro are putting down pressure on inflation in the near term, is anticipated to return to target in 2027.

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

Risk assessment

Risks to economic development remain slanted to the downside. An additional escalation in international trade tensions and associated uncertainties might reduce euro area development by dampening exports and dragging down financial investment and intake. A degeneration in financial market sentiment could cause tighter funding conditions and higher danger aversion, and confirm and households less happy to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the tragic dispute in the Middle East, stay a significant source of unpredictability. By contrast, if trade and geopolitical stress were dealt with quickly, this might lift belief and spur activity. A more increase 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 typical, as an outcome of the unpredictable worldwide trade policy environment. Falling energy costs and a more powerful euro might put further downward pressure on inflation. This could be strengthened if higher tariffs caused lower need for euro location exports and to nations with overcapacity rerouting their exports to the euro location. Trade stress might cause greater volatility and threat aversion in financial markets, which would weigh on domestic need and would thus likewise lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by rising import costs and contributing to capacity constraints in the domestic economy. A boost in defence and facilities costs might likewise raise inflation over the medium term. Extreme weather events, and the unfolding environment crisis more broadly, could drive up food rates by more than anticipated.

Financial and financial conditions

Risk-free interest rates have stayed broadly the same given that our last conference. Equity prices have increased, and business bond spreads have narrowed, in response to more positive news about international trade policies and the enhancement in worldwide threat belief.

Our past interest rate cuts continue to make corporate borrowing more economical. The typical rates of interest on new loans to firms decreased to 3.8 per cent in April, from 3.9 per cent in March. The expense of providing market-based debt was unchanged at 3.7 percent. Bank lending 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 corporate bond issuance was controlled. The average rates 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 technique, the Governing Council thoroughly assessed the links in between financial policy and financial stability. While euro area banks stay durable, more comprehensive financial stability dangers stay elevated, in particular owing to extremely uncertain and volatile global trade policies. Macroprudential policy stays the very first line of defence against the build-up of monetary vulnerabilities, boosting durability and maintaining macroprudential space.

The Governing Council today decided to decrease the three essential ECB rate of interest by 25 basis points. In specific, the decision to reduce the deposit facility rate - the rate through which we steer the financial policy position - is based upon our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are identified to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the appropriate financial policy stance. Our rates of interest decisions will be based on our evaluation of the inflation outlook due to the incoming economic and financial information, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.

In any case, we stand ready to adjust all of our instruments within our mandate to make sure that inflation stabilises sustainably at our medium-term target and to protect the smooth performance of financial policy transmission. (Compiled by Toby Chopra)
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