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June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's declaration after the bank's policy conference 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 press conference.

The Governing Council today decided to lower the 3 essential ECB interest rates by 25 basis points. In specific, the choice to lower the deposit center rate - the rate through which we steer the financial policy position - is based on our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of transmission.

Inflation is presently at around our two percent medium-term target. In the baseline of the brand-new Eurosystem staff forecasts, heading inflation is set to average 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 per cent in 2027. The downward revisions compared to the March projections, by 0.3 portion points for both 2025 and 2026, mainly show lower presumptions for energy rates and a more powerful euro. Staff expect inflation omitting 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 balancing 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 stronger than expected very first quarter integrated with weaker potential customers for the remainder of the year. While the unpredictability surrounding trade policies is anticipated to weigh on service financial investment and exports, specifically in the short term, increasing federal government investment in defence and infrastructure will increasingly support development over the medium term. Higher genuine earnings and a robust labour market will permit homes to invest more. Together with more beneficial funding conditions, this should make the economy more resistant to international shocks.

In the context of high unpredictability, staff also assessed some of the systems by which various trade policies could impact development and inflation under some alternative illustrative situations. These scenarios will be released with the personnel forecasts on our site. Under this situation analysis, a further escalation of trade stress over the coming months would lead to development and inflation being listed below the baseline forecasts. By contrast, if trade tensions were fixed with a benign outcome, growth and, to a lower extent, inflation would be greater than in the standard forecasts.

Most measures of underlying inflation recommend that inflation will settle at around our 2 percent medium-term target on a sustained basis. Wage development is still elevated but continues to moderate noticeably, and revenues are partially buffering its effect on inflation. The concerns that increased unpredictability and an unstable market response to the trade tensions in April would have a tightening up influence on funding conditions have relieved.

We are identified to make sure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting technique to determining the suitable financial policy stance. Our interest rate choices will be based upon our evaluation of the inflation outlook in light of the incoming economic and financial data, the dynamics 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 press release available on our site.

I will now lay out in more information how we see the economy and inflation establishing and will then describe our assessment of monetary and financial conditions.

Economic activity

The economy grew by 0.3 per cent in the 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 percent in the very first quarter of the year, according to the flash estimate.

In line with the staff projections, survey data point total to some weaker prospects in the near term. While manufacturing has actually enhanced, partially due to the fact that trade has been brought forward 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 firms to export. High unpredictability is expected to weigh on financial investment.

At the exact same time, numerous factors are keeping the economy resilient and ought to support growth over the medium term. A strong labour market, increasing real earnings, robust personal sector balance sheets and easier financing conditions, in part because of our past rate of interest cuts, ought to all help customers and firms withstand the fallout from a volatile worldwide environment. Recently revealed measures to step up defence and facilities investment must also boost growth.

In the present geopolitical environment, it is much more immediate for financial and structural policies to make the euro location 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, must be quickly adopted. This consists of completing the cost savings and financial investment union, following a clear and ambitious schedule. It is likewise crucial to quickly establish the legal framework to prepare the ground for the potential introduction of a digital euro. Governments must ensure sustainable public financial resources in line with the EU ´ s financial governance framework, while prioritising important growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation declined to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash estimate. Energy cost inflation stayed at -3.6 per cent. Food rate inflation increased to 3.3 percent, from 3.0 per cent the month before. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 percent in April. Services inflation had actually leapt in April generally due to the fact that prices for travel services around the Easter holidays increased by more than expected.

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our two percent medium-term target. Labour costs are slowly moderating, as suggested by incoming data on worked out wages and readily available country data on settlement per employee. The ECB ´ s wage tracker points to a further easing of negotiated wage development in 2025, while the personnel projections see wage development being up to listed below 3 percent 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 expected to go back to target in 2027.

Short-term customer inflation expectations edged up in April, most likely reflecting news about trade tensions. But many 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 economic growth stay slanted to the downside. An additional escalation in international trade tensions and associated uncertainties could decrease euro location development by dampening exports and dragging down financial investment and usage. A deterioration in monetary market belief might result in tighter financing conditions and higher risk aversion, and confirm and homes less willing to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the tragic dispute in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical tensions were dealt with swiftly, this might lift belief and spur activity. An additional increase in defence and facilities costs, together with productivity-enhancing reforms, would also contribute to growth.

The outlook for euro area inflation is more unsure than normal, as an outcome of the unpredictable international trade policy environment. Falling energy prices and a more powerful euro could put further down pressure on inflation. This might be enhanced 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 cause higher volatility and risk aversion in monetary markets, which would weigh on domestic demand and would thus also lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by pressing up import prices and adding to capacity restrictions in the domestic economy. A boost in defence and facilities spending might likewise raise inflation over the medium term. Extreme weather occasions, and the unfolding climate crisis more broadly, could drive up food costs by more than expected.

Financial and monetary conditions

Risk-free rate of interest have remained broadly unchanged since our last conference. Equity costs have risen, and business bond spreads have narrowed, in response to more positive news about international trade policies and the improvement in worldwide threat belief.

Our previous rate of interest cuts continue to make business borrowing less pricey. The typical rates 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 issuing market-based debt was unchanged at 3.7 per cent. Bank providing to companies continued to enhance 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 development in mortgage financing increased to 1.9 percent.

In line with our financial policy strategy, the Governing Council thoroughly evaluated the links between financial policy and monetary stability. While euro location banks stay resistant, more comprehensive financial stability threats remain raised, in particular owing to extremely unpredictable and volatile worldwide trade policies. Macroprudential policy remains the first line of defence against the accumulation of monetary vulnerabilities, improving durability and protecting macroprudential space.
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The Governing Council today decided to lower the three essential ECB interest rates by 25 basis points. In particular, the choice to lower the deposit center rate - the rate through which we steer the financial policy position - is based on our upgraded evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are determined to make sure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the proper monetary policy stance. Our interest rate decisions will be based upon our evaluation of the inflation outlook due to the incoming financial and monetary data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.

In any case, we stand ready to adjust all of our instruments within our mandate 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)