June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's statement after the bank's policy meeting on Thursday:
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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 invite you to our interview.

The Governing Council today chose to reduce the 3 crucial ECB interest rates by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we steer the financial policy stance - is based upon our upgraded assessment of the inflation outlook, the dynamics 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 new Eurosystem personnel forecasts, heading inflation is set to average 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The down modifications compared with the March forecasts, by 0.3 portion points for both 2025 and 2026, generally reflect lower assumptions for energy rates and a stronger euro. Staff anticipate inflation omitting energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged considering that March.

Staff see real GDP growth balancing 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 per cent in 2027. The unrevised growth forecast for 2025 shows a more powerful than expected very first quarter integrated with weaker potential customers for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on organization financial investment and exports, especially in the short-term, increasing government investment in defence and infrastructure will progressively support development over the medium term. Higher genuine earnings and a robust labour market will permit homes to spend more. Together with more favourable funding conditions, this must make the economy more resilient to global shocks.

In the context of high uncertainty, staff likewise assessed some of the mechanisms by which various trade policies could affect development and inflation under some alternative illustrative scenarios. These scenarios will be published with the personnel projections on our website. Under this scenario analysis, a further escalation of trade tensions over the coming months would result in development and inflation being below the standard forecasts. By contrast, if trade tensions were solved with a benign outcome, growth and, to a lesser extent, inflation would be higher than in the standard projections.

Most procedures of underlying inflation suggest that inflation will settle at around our 2 percent medium-term target on a continual basis. Wage growth is still raised however continues to moderate noticeably, and revenues are partly buffering its influence on inflation. The concerns that and an unstable market response to the trade tensions in April would have a tightening effect on funding conditions have actually eased.

We are determined 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 method to identifying the proper monetary policy position. Our rate of interest choices will be based on our evaluation of the inflation outlook due to the incoming financial 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.

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

I will now detail in more information how we see the economy and inflation developing and will then explain our assessment 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 estimate. Unemployment, at 6.2 per cent in April, is at its least expensive 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 price quote.

In line with the staff projections, study information point overall to some weaker prospects in the near term. While production has enhanced, partially since 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 companies to export. High uncertainty is anticipated to weigh on investment.

At the very same time, numerous factors 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 easier financing conditions, in part due to the fact that of our past interest rate cuts, must all assist customers and companies endure the fallout from an unpredictable worldwide environment. Recently revealed procedures to step up defence and infrastructure investment need to likewise strengthen growth.

In the present geopolitical environment, it is a lot more immediate for financial and structural policies to make the euro location economy more efficient, 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 swiftly adopted. This consists of finishing the cost savings and investment union, following a clear and enthusiastic schedule. It is likewise important to quickly develop the legislative framework to prepare the ground for the possible introduction of a digital euro. Governments need to guarantee sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising necessary growth-enhancing structural reforms and tactical 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 remained at -3.6 per cent. Food price inflation increased to 3.3 percent, from 3.0 per cent the month in the past. Goods inflation was the same at 0.6 per cent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had leapt in April generally due to the fact that prices for travel services around the Easter vacations increased by more than anticipated.

Most signs of underlying inflation recommend that inflation will stabilise sustainably at our two per cent medium-term target. Labour expenses are gradually moderating, as suggested by incoming information on worked out salaries and offered country information on payment per staff member. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the personnel projections see wage growth falling to listed below 3 per cent in 2026 and 2027. While lower energy prices and a more powerful euro are putting downward pressure on inflation in the near term, inflation is expected to go back to target in 2027.

Short-term customer inflation expectations edged up in April, most likely reflecting news about trade stress. 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 evaluation

Risks to financial development remain slanted to the disadvantage. An additional escalation in worldwide trade tensions and associated uncertainties could decrease euro location growth by dampening exports and dragging down investment and usage. A wear and tear in financial market belief could result in tighter financing conditions and higher risk hostility, and make firms and homes less going to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the tragic dispute in the Middle East, remain a significant source of uncertainty. By contrast, if trade and geopolitical stress were resolved swiftly, this could lift belief and spur activity. An additional boost in defence and infrastructure costs, together with productivity-enhancing reforms, would likewise add to growth.

The outlook for euro location inflation is more uncertain than usual, as an outcome of the unstable global trade policy environment. Falling energy prices and a more powerful euro could put additional downward pressure on inflation. This could be enhanced if higher tariffs caused lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro location. Trade stress could cause greater volatility and danger hostility in monetary markets, which would weigh on domestic need and would thus also lower inflation. By contrast, a fragmentation of international supply chains could raise inflation by pressing up import prices and adding to capability restraints in the domestic economy. An increase in defence and infrastructure spending might likewise raise inflation over the medium term. Extreme weather condition events, and the unfolding environment crisis more broadly, might increase food costs by more than anticipated.

Financial and monetary conditions

Risk-free rate of interest have remained broadly unchanged since our last meeting. Equity prices have actually increased, and corporate bond spreads have actually narrowed, in reaction to more favorable news about international trade policies and the improvement in international threat belief.

Our previous rates of interest cuts continue to make business loaning more economical. The typical rate of interest on new loans to companies declined to 3.8 per cent in April, from 3.9 per cent in March. The cost of providing market-based debt was unchanged at 3.7 percent. Bank providing to companies continued to strengthen slowly, growing by an annual rate of 2.6 percent in April after 2.4 per cent in March, while corporate bond issuance was controlled. The typical interest rate on new mortgages stayed at 3. 3 per cent in April, while development in mortgage loaning increased to 1.9 per cent.

In line with our monetary policy technique, the Governing Council completely examined the links between monetary policy and financial stability. While euro location banks stay durable, broader monetary stability threats stay raised, in specific owing to highly unsure and unpredictable international trade policies. Macroprudential policy stays the first line of defence versus the accumulation of financial vulnerabilities, boosting strength and maintaining macroprudential area.
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The Governing Council today decided to lower the three key ECB rate of interest by 25 basis points. In particular, the decision to lower the deposit facility rate - the rate through which we steer the monetary policy position - is based on our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission. We are determined to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting technique to determining the suitable monetary policy position. Our rates of interest decisions will be based on our evaluation of the inflation outlook due to the incoming 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 course.

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