June 5 (Reuters) - Following is the text of European Central 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 invite you to our interview.

The Governing Council today chose to lower the three key ECB interest rates by 25 basis points. In specific, the choice to reduce the deposit facility rate - the rate through which we steer the financial policy stance - is based upon our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is presently at around our 2 per cent medium-term target. In the baseline of the new Eurosystem personnel forecasts, headline inflation is set to typical 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 portion points for both 2025 and 2026, generally reflect lower presumptions for energy prices 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 the same because March.

Staff see genuine GDP growth balancing 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development projection for 2025 shows a more powerful than anticipated very first quarter combined with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is expected to weigh on organization financial investment and exports, particularly in the brief term, increasing government investment in defence and infrastructure will significantly support development over the medium term. Higher genuine incomes and a robust labour market will permit families to spend more. Together with more favourable financing conditions, this must make the economy more durable to international shocks.

In the context of high unpredictability, personnel likewise examined a few of the mechanisms by which different trade policies might impact growth and inflation under some alternative illustrative scenarios. These scenarios will be published with the personnel forecasts on our site. Under this scenario analysis, an additional escalation of trade stress over the coming months would lead to growth and inflation being listed below the standard projections. By contrast, if trade tensions were fixed with a benign outcome, growth and, to a lower level, inflation would be higher than in the baseline forecasts.

Most procedures 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 but continues to moderate visibly, and profits are partly buffering its impact on inflation. The concerns that increased uncertainty and a volatile market action to the trade stress in April would have a tightening up impact on financing conditions have actually eased.
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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 method to figuring out the suitable monetary policy position. Our interest rate choices will be based upon our evaluation of the inflation outlook in light of the inbound financial 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.

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

I will now describe in more detail how we see the economy and inflation developing and will then explain our assessment of monetary 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 least expensive level given that the launch of the euro, and employment grew by 0.3 per cent in the very first quarter of the year, according to the flash quote.

In line with the personnel forecasts, survey information point overall to some weaker potential customers in the near term. While production has reinforced, partially since 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 uncertainty is anticipated to weigh on investment.

At the exact same time, numerous elements are keeping the economy resistant and must support growth over the medium term. A strong labour market, rising genuine incomes, robust personal sector balance sheets and much easier financing conditions, in part since of our previous rates of interest cuts, should all assist customers and firms endure the fallout from an unstable worldwide environment. Recently announced procedures to step up defence and infrastructure financial investment must likewise strengthen growth.

In today geopolitical environment, it is much more urgent for fiscal and structural policies to make the euro area economy more efficient, 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 adopted. This consists of completing the savings and financial investment union, following a clear and ambitious timetable. It is likewise essential to rapidly establish the legal structure to prepare the ground for the possible intro of a digital euro. Governments should guarantee sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising important growth-enhancing structural reforms and tactical investment.

Inflation

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

Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are gradually moderating, as suggested by inbound information on worked out earnings and offered nation information on compensation per employee. The ECB ´ s wage tracker points to a further easing of negotiated wage development in 2025, while the personnel projections see wage growth falling to below 3 per cent in 2026 and 2027. While lower energy costs and a stronger euro are putting down pressure on inflation in the near term, inflation is expected to return to target in 2027.

Short-term customer inflation expectations edged up in April, likely showing news about trade stress. 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 growth stay tilted to the disadvantage. An additional escalation in worldwide trade tensions and associated unpredictabilities could lower euro location growth by moistening exports and dragging down financial investment and usage. A deterioration in monetary market sentiment might cause tighter funding conditions and higher threat aversion, and confirm and homes less happy to invest and take in. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the awful conflict in the Middle East, stay a significant source of uncertainty. By contrast, if trade and geopolitical stress were resolved swiftly, this might lift sentiment and spur activity. A more boost in defence and facilities costs, together with productivity-enhancing reforms, would likewise contribute to development.

The outlook for euro location inflation is more uncertain than usual, as an outcome of the volatile global trade policy environment. prices and a more powerful euro could put further down pressure on inflation. This might be enhanced if higher tariffs led to lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade stress could cause greater volatility and threat hostility in financial markets, which would weigh on domestic demand and would therefore also lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by pushing up import prices and including to capacity restraints 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 environment crisis more broadly, could drive up food prices by more than expected.

Financial and monetary conditions

Risk-free interest rates have stayed broadly the same given that our last meeting. Equity rates have increased, and business bond spreads have narrowed, in response to more favorable news about international trade policies and the improvement in global threat sentiment.

Our past rate of interest cuts continue to make business borrowing cheaper. The average rates of interest on new loans to firms declined 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 lending to companies continued to reinforce gradually, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was suppressed. The typical rates of interest on brand-new mortgages remained at 3. 3 per cent in April, while development in mortgage loaning increased to 1.9 per cent.

In line with our financial policy method, the Governing Council thoroughly examined the links in between monetary policy and financial stability. While euro location banks stay durable, broader financial stability dangers remain elevated, in specific owing to extremely unpredictable and unstable worldwide trade policies. Macroprudential policy stays the very first line of defence versus the build-up of monetary vulnerabilities, boosting resilience and preserving macroprudential area.

The Governing Council today chose to reduce the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit center rate - the rate through which we steer the financial policy position - is based upon our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting technique to determining the appropriate monetary policy position. Our interest rate decisions will be based on our evaluation of the inflation outlook because 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 specific rate course.

In any case, we stand prepared to change all of our instruments within our mandate 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)