June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's declaration after the bank's policy conference 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 invite you to our interview.

The Governing Council today chose to reduce the 3 essential ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit center rate - the rate through which we guide the financial policy position - is based upon our upgraded evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our two percent medium-term target. In the baseline of the new Eurosystem personnel forecasts, headline 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 modifications compared to the March projections, by 0.3 portion points for both 2025 and 2026, primarily show lower assumptions for energy prices and a stronger euro. Staff anticipate inflation leaving out energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged given that March.

Staff see genuine GDP development averaging 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 reflects a stronger than anticipated first quarter integrated with weaker potential customers for the rest of the year. While the uncertainty surrounding trade policies is anticipated to weigh on organization investment and exports, specifically in the short term, rising government financial investment in defence and facilities will progressively support development over the medium term. Higher real incomes and a robust labour market will enable households to invest more. Together with more favourable financing conditions, this ought to make the economy more resistant to worldwide shocks.

In the context of high unpredictability, staff also assessed a few of the mechanisms by which various trade policies could affect development and inflation under some alternative illustrative circumstances. These situations will be published with the on our site. Under this situation analysis, a more escalation of trade stress over the coming months would lead to growth and inflation being below the baseline projections. By contrast, if trade tensions were fixed with a benign result, development and, to a lower level, inflation would be greater than in the standard forecasts.

Most procedures of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is still elevated but continues to moderate noticeably, and profits are partially buffering its effect on inflation. The concerns that increased unpredictability and an unpredictable market reaction to the trade tensions in April would have a tightening effect on financing conditions have eased.

We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting method to figuring out the proper monetary policy position. Our rates of interest choices will be based on our assessment of the inflation outlook due to the incoming financial and monetary data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate course.

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

I will now outline in more detail how we see the economy and inflation establishing and will then describe our assessment of monetary 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 price quote. Unemployment, at 6.2 per cent in April, is at its most affordable level since the launch of the euro, and employment grew by 0.3 per cent in the first quarter of the year, according to the flash quote.

In line with the personnel projections, survey data point general to some weaker potential customers in the near term. While production has reinforced, partially because 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 very same time, numerous elements are keeping the economy resilient 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, must all help customers and firms hold up against the fallout from an unstable international environment. Recently announced steps to step up defence and infrastructure financial investment should likewise bolster development.

In the present geopolitical environment, it is even more urgent for financial and structural policies to make the euro area economy more productive, competitive and resistant. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, consisting of on simplification, should be promptly adopted. This consists of completing the savings and investment union, following a clear and enthusiastic schedule. It is likewise essential to rapidly establish the legal framework to prepare the ground for the potential intro of a digital euro. Governments should make sure sustainable public finances in line with the EU ´ s financial governance framework, while prioritising essential growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation decreased to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash price quote. Energy rate inflation stayed at -3.6 percent. Food price inflation rose to 3.3 per cent, 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 per cent, from 4.0 percent in April. Services inflation had actually jumped in April mainly due to the fact that rates for travel services around the Easter vacations went up by more than expected.

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour costs are slowly moderating, as shown by inbound data on worked out wages and readily available country data on payment per staff member. The ECB ´ s wage tracker indicate an additional easing of worked out wage growth in 2025, while the staff forecasts see wage growth being up to listed below 3 percent in 2026 and 2027. While lower energy prices and a stronger euro are putting downward pressure on inflation in the near term, inflation is anticipated to return to target in 2027.

Short-term consumer inflation expectations edged up in April, most likely showing news about trade stress. But most 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 financial development stay slanted to the downside. A further escalation in global trade stress and associated uncertainties might decrease euro location growth by dampening exports and dragging down financial investment and usage. A wear and tear in monetary market sentiment could cause tighter funding conditions and greater danger aversion, and make companies and homes less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, stay a significant source of uncertainty. By contrast, if trade and geopolitical stress were resolved promptly, this might raise sentiment and spur activity. A further increase in defence and infrastructure costs, together with productivity-enhancing reforms, would likewise include to growth.

The outlook for euro location inflation is more unsure than typical, as an outcome of the unstable international trade policy environment. Falling energy rates and a more powerful euro might put further down pressure on inflation. This could be strengthened if greater tariffs caused lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade stress could cause higher volatility and threat hostility in monetary markets, which would weigh on domestic need and would therefore also lower inflation. By contrast, a fragmentation of international supply chains could raise inflation by pushing up import costs and contributing to capacity restrictions in the domestic economy. An increase in defence and infrastructure spending could likewise raise inflation over the medium term. Extreme weather condition events, and the unfolding climate crisis more broadly, could increase food rates by more than expected.

Financial and monetary conditions

Risk-free rate of interest have stayed broadly unchanged because our last meeting. Equity rates have actually risen, and business bond spreads have narrowed, in action to more favorable news about global trade policies and the improvement in global threat belief.

Our past rates of interest cuts continue to make corporate borrowing less expensive. The typical rates of interest on brand-new loans to firms 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 per cent. Bank providing to firms continued to enhance gradually, growing by an annual rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was subdued. The typical rates of interest on new mortgages remained at 3. 3 percent in April, while growth in mortgage loaning increased to 1.9 per cent.

In line with our monetary policy method, the Governing Council thoroughly assessed the links in between monetary policy and financial stability. While euro location banks remain durable, broader financial stability threats remain raised, in specific owing to extremely uncertain and volatile global trade policies. Macroprudential policy stays the first line of defence against the accumulation of financial vulnerabilities, boosting strength and preserving macroprudential area.
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The Governing Council today chose to lower the three essential ECB rate of interest by 25 basis points. In specific, the decision to reduce the deposit center rate - the rate through which we guide the monetary policy stance - is based upon our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are identified to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in present conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting approach to identifying the suitable financial policy stance. Our rate of interest choices will be based on our assessment of the inflation outlook due to the inbound financial and monetary data, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.

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