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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 statement 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 reduce the three crucial ECB rates of interest by 25 basis points. In specific, the decision to reduce the deposit center rate - the rate through which we steer the financial policy position - is based on our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.

Inflation is currently at around our 2 per cent medium-term target. In the standard of the brand-new Eurosystem staff projections, headline inflation is set to average 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 per cent in 2027. The down modifications compared with the March forecasts, by 0.3 portion points for both 2025 and 2026, mainly show lower presumptions for energy costs and a stronger euro. Staff anticipate inflation leaving out energy and food to typical 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged since March.

Staff see real GDP development averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised development forecast for 2025 reflects a more powerful than expected very first quarter combined with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on company financial investment and exports, especially in the short-term, rising federal government financial investment in defence and facilities will progressively support growth over the medium term. Higher real incomes and a robust labour market will permit families to invest more. Together with more beneficial financing conditions, this should make the economy more resilient to international shocks.

In the context of high uncertainty, personnel also evaluated a few of the systems by which different trade policies could impact growth and inflation under some alternative illustrative situations. These circumstances will be published with the staff forecasts on our site. Under this scenario analysis, an additional escalation of trade tensions over the coming months would lead to growth and inflation being below the standard projections. By contrast, if trade tensions were resolved with a benign result, development and, to a lesser extent, inflation would be greater than in the baseline forecasts.

Most measures of underlying inflation suggest that inflation will settle at around our 2 percent medium-term target on a sustained basis. Wage growth is still elevated however continues to moderate visibly, and revenues are partly buffering its influence on inflation. The concerns that increased uncertainty and an unpredictable market response to the trade stress in April would have a tightening up effect on funding conditions have actually reduced.

We are identified to guarantee that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting method to determining the appropriate monetary policy stance. Our rate of interest decisions will be based upon our assessment of the inflation outlook because of the incoming economic and monetary data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate course.

The choices taken today are set out in a press release 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 monetary conditions.

Economic activity

The economy grew by 0.3 per cent in the very first quarter of 2025, according to Eurostat ´ s flash price quote. Unemployment, at 6.2 percent in April, is at its most affordable level since 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 projections, study data point overall to some weaker prospects in the near term. While production has reinforced, 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 more powerful euro are anticipated to make it harder for companies to export. High uncertainty is expected to weigh on investment.

At the exact same time, several elements are keeping the economy resilient and should support development over the medium term. A strong labour market, rising genuine incomes, robust economic sector balance sheets and easier financing conditions, in part because of our past rate of interest cuts, should all help consumers and companies stand up to the fallout from an unpredictable worldwide environment. Recently announced procedures to step up defence and infrastructure financial investment should likewise reinforce development.

In today geopolitical environment, it is a lot more urgent for financial and structural policies to make the euro area economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its propositions, including on simplification, need to be swiftly embraced. This consists of completing the cost savings and investment union, following a clear and ambitious timetable. It is likewise crucial to quickly establish the legal structure to prepare the ground for the potential introduction of a digital euro. Governments need to make sure sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising necessary growth-enhancing structural reforms and tactical 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 stayed at -3.6 per cent. Food rate inflation increased to 3.3 percent, 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 percent, from 4.0 per cent in April. Services inflation had jumped in April generally because costs for travel services around the Easter vacations went up by more than expected.

Most indicators of underlying inflation recommend that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are gradually moderating, as shown by incoming data on worked out incomes and offered nation data on compensation per employee. The ECB ´ s wage tracker indicate an additional easing of worked out wage growth in 2025, while the staff forecasts see wage development falling to below 3 percent in 2026 and 2027. While lower energy costs and a stronger euro are putting down pressure on inflation in the near term, inflation is expected to return to target in 2027.

Short-term consumer inflation expectations edged up in April, most likely reflecting news about trade tensions. 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 financial growth stay slanted to the drawback. A further escalation in worldwide trade stress and associated uncertainties could decrease euro area development by moistening exports and dragging down financial investment and usage. A deterioration in financial market belief could cause tighter financing conditions and greater risk hostility, and make firms and families less going to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the tragic 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 add to development.

The outlook for euro location inflation is more uncertain than normal, as an outcome of the unstable worldwide trade policy . Falling energy prices and a more powerful euro could put additional down pressure on inflation. This might be strengthened if greater tariffs resulted in lower need for euro location exports and to nations with overcapacity rerouting their exports to the euro area. Trade tensions might result in higher volatility and risk hostility in monetary markets, which would weigh on domestic demand and would consequently also lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by rising import prices and including to capacity restraints in the domestic economy. An increase in defence and facilities costs could also raise inflation over the medium term. Extreme weather occasions, and the unfolding environment crisis more broadly, might increase food rates by more than anticipated.

Financial and financial conditions

Risk-free rates of interest have stayed broadly unchanged since our last meeting. Equity prices have actually risen, and corporate bond spreads have narrowed, in reaction to more favorable news about international trade policies and the enhancement in worldwide risk belief.

Our past interest rate cuts continue to make corporate loaning more economical. The average rate of interest on new loans to firms declined to 3.8 percent in April, from 3.9 per cent in March. The cost of releasing market-based financial obligation was the same at 3.7 per cent. Bank providing to firms continued to reinforce gradually, growing by an annual rate of 2.6 per cent in April after 2.4 percent in March, while business bond issuance was controlled. The typical interest rate on brand-new mortgages remained at 3. 3 percent in April, while development in mortgage lending increased to 1.9 percent.

In line with our monetary policy method, the Governing Council completely assessed the links in between monetary policy and financial stability. While euro area banks remain durable, broader financial stability threats remain raised, in specific owing to highly unsure and unpredictable international trade policies. Macroprudential policy stays the first line of defence against the build-up of monetary vulnerabilities, improving durability and maintaining macroprudential area.
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The Governing Council today decided to lower the three crucial ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit facility rate - the rate through which we guide the financial policy stance - is based upon our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are determined to guarantee that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting technique to determining the appropriate monetary policy position. Our interest rate choices will be based upon our assessment of the inflation outlook due to the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate course.

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