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

The Governing Council today decided to decrease the 3 key ECB rate of interest by 25 basis points. In particular, the choice to lower the deposit facility rate - the rate through which we guide the financial policy position - 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 staff forecasts, heading 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 with the March projections, by 0.3 portion points for both 2025 and 2026, primarily show lower presumptions for energy rates and a stronger euro. Staff expect inflation omitting energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly the same since March.

Staff see genuine GDP development averaging 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 percent in 2027. The unrevised development projection for 2025 shows a more powerful than expected first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on organization investment and exports, especially in the brief term, increasing federal government financial investment in defence and facilities will increasingly support development over the medium term. Higher genuine incomes and a market will allow homes to invest more. Together with more favourable funding conditions, this should make the economy more resistant to global shocks.

In the context of high unpredictability, staff also examined some of the systems by which various trade policies could affect development and inflation under some alternative illustrative circumstances. These scenarios will be published with the staff projections on our website. Under this circumstance analysis, a more escalation of trade tensions over the coming months would lead to growth and inflation being listed below the baseline forecasts. By contrast, if trade stress were fixed with a benign outcome, growth and, to a lesser degree, inflation would be greater than in the baseline forecasts.
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Most measures of underlying inflation suggest that inflation will settle at around our 2 per cent medium-term target on a continual basis. Wage growth is still elevated but continues to moderate visibly, and earnings are partly buffering its influence on inflation. The concerns that increased uncertainty and a volatile market reaction to the trade stress in April would have a tightening influence on financing conditions have actually eased.

We are identified to guarantee that inflation stabilises sustainably at our 2 percent medium-term target. Especially in present conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting approach to identifying the suitable financial policy position. Our rate of interest choices will be based upon our assessment of the inflation outlook in light of the inbound economic and financial data, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.

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

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

Economic activity

The economy grew by 0.3 per cent in the first quarter of 2025, according to Eurostat ´ s flash estimate. Unemployment, at 6.2 percent in April, is at its least expensive level since 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 price quote.
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In line with the staff projections, survey information point general to some weaker prospects in the near term. While production has actually reinforced, partially since trade has 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 firms to export. High unpredictability is anticipated to weigh on investment.

At the very same time, numerous elements are keeping the economy durable and ought to support growth over the medium term. A strong labour market, rising genuine earnings, robust economic sector balance sheets and simpler financing conditions, in part because of our past rate of interest cuts, need to all assist customers and companies withstand the fallout from an unpredictable global environment. Recently announced procedures to step up defence and infrastructure financial investment must also boost development.

In today geopolitical environment, it is much more urgent for fiscal 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 proposals, including on simplification, need to be promptly embraced. This consists of completing the savings and investment union, following a clear and ambitious schedule. It is also crucial to quickly establish the legal structure to prepare the ground for the potential intro of a digital euro. Governments must guarantee sustainable public finances in line with the EU ´ s economic governance structure, while prioritising necessary growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy rate inflation remained at -3.6 per cent. Food price inflation rose to 3.3 per cent, from 3.0 per cent the month previously. Goods inflation was the same at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 per cent in April. Services inflation had leapt in April generally because costs 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 per cent medium-term target. Labour costs are gradually moderating, as suggested by incoming data on worked out incomes and available nation information on settlement per employee. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the staff projections see wage growth being up to listed below 3 per cent in 2026 and 2027. While lower energy costs and a more powerful euro are putting down pressure on inflation in the near term, inflation is anticipated to return to target in 2027.

Short-term customer inflation expectations edged up in April, most likely reflecting news about trade stress. But a lot of measures of longer-term inflation expectations continue to stand at around 2 percent, which supports the stabilisation of inflation around our target.

Risk assessment

Risks to economic development remain tilted to the downside. An additional escalation in international trade tensions and associated uncertainties could reduce euro location development by dampening exports and dragging down investment and consumption. A deterioration in monetary market sentiment might lead to tighter financing conditions and greater danger aversion, and make companies and households less prepared to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the awful conflict in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical stress were resolved quickly, this might lift belief and spur activity. A further boost in defence and infrastructure costs, together with productivity-enhancing reforms, would also contribute to growth.

The outlook for euro location inflation is more unpredictable than normal, as an outcome of the unpredictable worldwide trade policy environment. Falling energy rates and a more powerful euro could put more downward pressure on inflation. This might be reinforced if greater tariffs resulted in lower need for euro location exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions could result in higher volatility and threat hostility in monetary markets, which would weigh on domestic need and would thereby likewise lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by pressing up import prices and including to capacity constraints 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 drive up food prices by more than anticipated.

Financial and monetary conditions

Risk-free rate of interest have remained broadly unchanged considering that our last meeting. Equity prices have risen, and business bond spreads have narrowed, in reaction to more favorable news about global trade policies and the improvement in global danger belief.

Our previous rate of interest cuts continue to make business borrowing less pricey. The average interest rate on new loans to companies declined to 3.8 percent in April, from 3.9 percent in March. The expense of providing market-based debt was unchanged at 3.7 percent. Bank providing to companies continued to reinforce gradually, growing by a yearly rate of 2.6 per cent in April after 2.4 percent in March, while business bond issuance was controlled. The average rates of interest on new mortgages remained at 3. 3 percent in April, while growth in mortgage financing increased to 1.9 percent.

In line with our monetary policy strategy, the Governing Council completely examined the links in between monetary policy and monetary stability. While euro area banks stay resistant, wider monetary stability risks remain elevated, in specific owing to highly uncertain and unpredictable international trade policies. Macroprudential policy remains the very first line of defence against the build-up of monetary vulnerabilities, enhancing strength and protecting macroprudential space.

The Governing Council today decided to decrease the three key ECB rate of interest by 25 basis points. In particular, the decision to reduce the deposit facility rate - the rate through which we guide the monetary policy stance - is based on our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are figured out to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the proper financial policy position. Our rate of interest choices will be based upon our assessment of the inflation outlook because of the inbound economic and financial data, the characteristics 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 all set to change all of our instruments within our mandate to make sure that inflation stabilises sustainably at our medium-term target and to protect the smooth performance of financial policy transmission. (Compiled by Toby Chopra)