June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's statement after the bank's policy conference on Thursday:

Link to declaration 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 welcome you to our press conference.

The Governing Council today decided to lower the three key ECB rates of interest by 25 basis points. In specific, the decision to reduce the deposit facility rate - the rate through which we guide the monetary policy position - is based upon our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

Inflation is currently at around our two percent medium-term target. In the baseline of the new Eurosystem personnel forecasts, heading inflation is set to typical 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The down modifications compared with the March projections, by 0.3 percentage points for both 2025 and 2026, primarily reflect lower presumptions for energy prices and a stronger euro. Staff expect inflation excluding energy and food to typical 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same considering that March.

Staff see real GDP growth averaging 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development forecast for 2025 shows a more powerful than expected first quarter combined with weaker prospects for the rest of the year. While the uncertainty surrounding trade policies is expected to weigh on business financial investment and exports, especially in the brief term, rising federal government investment in defence and infrastructure will significantly support development over the medium term. Higher real incomes and a robust labour market will allow homes to invest more. Together with more beneficial financing conditions, this need to make the economy more durable to international shocks.

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

Most measures 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 unpredictability and a volatile market reaction to the trade stress in April would have a tightening up impact on financing conditions have eased.

We are identified to make sure that inflation stabilises sustainably at our two per cent medium-term target. Especially in present conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting technique to determining the appropriate financial policy stance. Our rate of interest choices will be based on our assessment of the inflation outlook because of the incoming economic and monetary data, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.

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

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

Economic activity

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

In line with the personnel forecasts, survey information point overall to some weaker potential customers in the near term. While manufacturing has enhanced, 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 more powerful euro are anticipated to make it harder for companies to export. High unpredictability is expected to weigh on investment.

At the exact same time, numerous factors are keeping the economy durable and needs to support growth over the medium term. A strong labour market, increasing real earnings, robust economic sector balance sheets and simpler financing conditions, in part due to the fact that of our previous rate of interest cuts, should all assist customers and companies hold up against the fallout from a volatile international environment. Recently revealed procedures to step up defence and facilities financial investment should likewise boost growth.

In today geopolitical environment, it is a lot more immediate for financial and structural policies to make the euro area economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, including on simplification, must be swiftly adopted. This includes completing the savings and financial investment union, following a clear and ambitious schedule. It is likewise important to quickly establish the legislative structure to prepare the ground for the possible intro of a digital euro. Governments ought to ensure sustainable public finances in line with the EU ´ s financial governance framework, while prioritising vital growth-enhancing structural reforms and tactical financial investment.

Inflation

Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash price quote. Energy cost inflation remained at -3.6 per cent. Food cost inflation increased 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 percent, from 4.0 percent in April. Services inflation had actually jumped in April mainly due to the fact that prices for travel services around the Easter holidays went up by more than anticipated.

Most signs of underlying inflation suggest that inflation will stabilise sustainably at our two percent medium-term target. Labour expenses are slowly moderating, as indicated by incoming data on worked out salaries and readily available nation data 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 forecasts see wage development 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 expected to go back to target in 2027.

Short-term consumer inflation expectations edged up in April, most likely reflecting news about trade tensions. 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 tilted to the drawback. A more escalation in global trade tensions and associated uncertainties could decrease euro location growth by moistening exports and dragging down investment and usage. A wear and tear in financial market belief could lead to tighter funding conditions and higher risk aversion, and make companies and households less happy to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the awful dispute in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical stress were resolved promptly, this could raise belief and spur activity. A further increase in defence and facilities costs, together with productivity-enhancing reforms, would likewise add to growth.

The outlook for euro area inflation is more unsure than typical, as an outcome of the unpredictable international trade policy environment. Falling energy prices and a more powerful euro could put further downward pressure on inflation. This could be strengthened if higher tariffs led to lower need for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade stress could result in higher volatility and danger hostility in monetary markets, which would weigh on domestic demand and would consequently also lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by pushing up import costs and adding to capacity constraints in the domestic economy. An increase in defence and facilities costs might likewise raise inflation over the medium term. Extreme weather condition occasions, and the unfolding environment crisis more broadly, might drive up food costs by more than anticipated.

Financial and monetary conditions

Risk-free interest rates have actually stayed broadly the same because our last conference. Equity prices have actually risen, and corporate bond spreads have narrowed, in action to more positive news about global trade policies and the improvement in international danger sentiment.

Our past interest rate cuts continue to make corporate loaning cheaper. The typical rates of interest on new loans to firms declined to 3.8 per cent in April, from 3.9 percent in March. The expense of issuing market-based financial obligation was unchanged at 3.7 percent. Bank providing to firms continued to enhance slowly, growing by an annual rate of 2.6 per cent in April after 2.4 per cent in March, while business bond issuance was subdued. The average rate of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage lending increased to 1.9 per cent.

In line with our financial policy strategy, the Governing Council thoroughly assessed the links in between monetary policy and monetary stability. While euro location banks remain resistant, more comprehensive monetary stability dangers stay elevated, in specific owing to extremely unpredictable and unpredictable international trade policies. Macroprudential policy stays the very first line of defence versus the accumulation of financial vulnerabilities, enhancing durability and maintaining macroprudential space.

The Governing Council today chose to reduce the 3 key ECB rate of interest by 25 basis points. In specific, the decision to lower the deposit center rate - the rate through which we steer the monetary policy position - is based upon our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission. We are determined to ensure that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting method to identifying the suitable financial policy position. Our rates of interest choices will be based on our assessment 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 path.

In any case, we stand ready 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)