June 5 (Reuters) - Following is the text of European Central 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
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Good afternoon, the Vice-President and I welcome you to our press conference.

The Governing Council today decided to reduce the 3 crucial ECB rates of interest by 25 basis points. In particular, the choice to reduce the deposit facility rate - the rate through which we steer the financial policy stance - is based upon our upgraded 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 standard of the brand-new Eurosystem personnel projections, headline inflation is set to typical 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 percent in 2027. The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, generally reflect lower assumptions for energy rates and a more powerful euro. Staff expect inflation omitting energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same since 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 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 anticipated to weigh on business financial investment and exports, particularly in the short-term, increasing federal government financial investment in defence and facilities will increasingly support development over the medium term. Higher genuine incomes and a robust labour market will permit homes to spend more. Together with more favourable financing conditions, this should make the economy more durable to global shocks.

In the context of high uncertainty, personnel likewise some of the mechanisms by which different trade policies could affect growth and inflation under some alternative illustrative scenarios. These circumstances will be released with the staff projections on our site. Under this scenario analysis, a further escalation of trade stress over the coming months would lead to growth and inflation being below the baseline projections. By contrast, if trade stress were fixed with a benign result, growth and, to a lower extent, inflation would be higher than in the baseline projections.

Most measures of underlying inflation suggest 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 visibly, and earnings are partially buffering its effect on inflation. The issues that increased unpredictability and a volatile market reaction to the trade stress in April would have a tightening up influence on funding conditions have actually reduced.

We are identified to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the appropriate monetary policy stance. Our rate of interest decisions will be based upon our assessment of the inflation outlook due to the inbound financial and financial information, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate path.

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

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

Economic activity

The economy grew by 0.3 percent in the first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 per cent in April, is at its most affordable level because the launch of the euro, and work grew by 0.3 percent in the 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 strengthened, partly due to the fact that 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 expected to make it harder for companies to export. High unpredictability is expected to weigh on financial investment.

At the same time, numerous elements are keeping the economy durable and must support development over the medium term. A strong labour market, rising genuine incomes, robust personal sector balance sheets and easier financing conditions, in part since of our past rates of interest cuts, ought to all help customers and firms stand up to the fallout from a volatile international environment. Recently revealed steps to step up defence and facilities financial investment must also reinforce development.

In today geopolitical environment, it is much more urgent for fiscal and structural policies to make the euro location economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its propositions, consisting of on simplification, need to be quickly adopted. This includes finishing the savings and investment union, following a clear and enthusiastic schedule. It is also essential to quickly develop the legal structure to prepare the ground for the prospective intro of a digital euro. Governments ought to make sure sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising necessary 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 quote. Energy price inflation stayed at -3.6 percent. Food price inflation increased to 3.3 percent, from 3.0 per cent the month previously. Goods inflation was unchanged at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 percent in April. Services inflation had jumped in April primarily since rates for travel services around the Easter holidays increased by more than expected.

Most signs of underlying inflation recommend that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are gradually moderating, as shown by inbound data on worked out wages and readily available country information on payment per staff member. The ECB ´ s wage tracker points to a more easing of negotiated wage development in 2025, while the personnel forecasts see wage development falling to below 3 per cent 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 go back to target in 2027.

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

Risk evaluation

Risks to financial development remain slanted to the disadvantage. A further escalation in international trade stress and associated unpredictabilities could reduce euro location growth by dampening exports and dragging down investment and intake. A deterioration in financial market belief could result in tighter funding conditions and greater danger hostility, and make companies and families less prepared to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the terrible dispute in the Middle East, remain a significant source of uncertainty. By contrast, if trade and geopolitical stress were dealt with quickly, this might raise belief and spur activity. A further increase in defence and infrastructure spending, together with productivity-enhancing reforms, would likewise contribute to development.

The outlook for euro area inflation is more unpredictable than typical, as an outcome of the unpredictable global trade policy environment. Falling energy rates and a more powerful euro could put further downward pressure on inflation. This might be enhanced if greater tariffs led to lower need for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions could result in higher 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 could raise inflation by rising import rates and adding to capability restraints in the domestic economy. An increase in defence and infrastructure spending could likewise raise inflation over the medium term. Extreme weather events, and the unfolding environment crisis more broadly, might increase food rates by more than anticipated.

Financial and financial conditions

Risk-free rate of interest have stayed broadly the same because our last meeting. Equity rates have risen, and corporate bond spreads have actually narrowed, in reaction to more positive news about worldwide trade policies and the improvement in worldwide threat sentiment.

Our previous rates of interest cuts continue to make business loaning more economical. The average rate of interest on brand-new loans to companies decreased to 3.8 per cent in April, from 3.9 percent in March. The expense of providing market-based financial obligation was unchanged at 3.7 per cent. Bank providing to firms continued to strengthen gradually, growing by an annual rate of 2.6 per cent in April after 2.4 per cent in March, while corporate bond issuance was suppressed. The typical rate of interest on new mortgages stayed at 3. 3 per cent in April, while growth in mortgage financing increased to 1.9 per cent.

In line with our financial policy strategy, the Governing Council completely assessed the links in between monetary policy and monetary stability. While euro area banks stay resistant, wider financial stability dangers stay elevated, in specific owing to extremely unpredictable and volatile worldwide trade policies. Macroprudential policy stays the very first line of defence against the accumulation of financial vulnerabilities, boosting resilience and preserving macroprudential space.

The Governing Council today decided to decrease the three crucial 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 position - is based on our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are identified to ensure that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting technique to figuring out the proper monetary policy position. Our rates of interest choices will be based upon our evaluation of the inflation outlook in light of the inbound economic and financial data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

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