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

Link to declaration on ECB website: 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 3 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 financial policy stance - is based upon our upgraded evaluation 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 personnel forecasts, heading inflation is set to typical 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 percent in 2027. The down revisions compared to the March projections, by 0.3 portion points for both 2025 and 2026, mainly show lower assumptions for energy prices and a stronger euro. Staff anticipate inflation excluding energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged given that March.

Staff see genuine GDP growth balancing 0.9 percent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised development projection for 2025 reflects a more powerful than anticipated first quarter integrated with weaker potential customers for the rest of the year. While the unpredictability surrounding trade policies is expected to weigh on service investment and exports, especially in the short term, rising federal government financial investment in defence and facilities will increasingly support growth over the medium term. Higher real incomes and a robust labour market will allow families to invest more. Together with more beneficial funding conditions, this should make the economy more durable to global shocks.

In the context of high unpredictability, staff likewise assessed a few of the mechanisms by which various trade policies could impact development and inflation under some alternative illustrative circumstances. These circumstances will be released with the staff projections on our website. Under this situation analysis, an additional escalation of trade tensions 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 outcome, development and, to a lesser extent, inflation would be greater than in the baseline forecasts.

Most procedures of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a continual basis. Wage development is still elevated but continues to moderate visibly, and earnings are partly buffering its effect on inflation. The issues that increased uncertainty and a volatile market response to the trade tensions in April would have a tightening influence on funding conditions have actually eased.

We are figured out to guarantee that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the proper monetary policy position. Our rates of interest decisions will be based on our assessment of the inflation outlook due to the incoming economic and financial information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

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

I will now lay out in more detail how we see the economy and inflation establishing and will then explain our evaluation of financial and financial 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 per cent in April, is at its least expensive level since the launch of the euro, and work grew by 0.3 percent in the first quarter of the year, according to the .

In line with the staff forecasts, survey data point overall to some weaker potential customers in the near term. While production has enhanced, partly due to the fact that 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 uncertainty is anticipated to weigh on financial investment.

At the very same time, a number of factors are keeping the economy resistant and should support development over the medium term. A strong labour market, rising real incomes, robust economic sector balance sheets and much easier funding conditions, in part due to the fact that of our previous interest rate cuts, ought to all help consumers and firms endure the fallout from an unpredictable worldwide environment. Recently announced measures to step up defence and facilities investment ought to likewise boost growth.

In the present geopolitical environment, it is even more immediate for fiscal and structural policies to make the euro area economy more efficient, competitive and resilient. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, consisting of on simplification, ought to be swiftly embraced. This includes finishing the cost savings and financial investment union, following a clear and ambitious schedule. It is likewise essential to rapidly establish the legal framework to prepare the ground for the potential introduction of a digital euro. Governments ought to make sure sustainable public financial resources in line with the EU ´ s financial governance framework, while prioritising vital growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation declined to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy cost inflation remained at -3.6 percent. 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 went up by more than anticipated.

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour costs are slowly moderating, as shown by inbound data on negotiated earnings and available nation data on payment per staff member. The ECB ´ s wage tracker indicate a more easing of worked out wage development in 2025, while the staff projections see wage growth falling to below 3 per cent in 2026 and 2027. While lower energy costs and a more powerful euro are putting downward pressure on inflation in the near term, inflation is anticipated to return to target in 2027.

Short-term consumer inflation expectations edged up in April, likely showing news about trade stress. 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 financial growth stay tilted to the downside. A further escalation in international trade tensions and associated uncertainties might lower euro area growth by moistening exports and dragging down investment and intake. A deterioration in monetary market sentiment could lead to tighter financing conditions and higher risk aversion, and confirm and households less happy to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical stress were dealt with quickly, this might raise belief and spur activity. An additional increase in defence and facilities costs, together with productivity-enhancing reforms, would likewise add to growth.

The outlook for euro location inflation is more unsure than usual, as a result of the volatile worldwide trade policy environment. Falling energy rates and a stronger euro might put additional downward pressure on inflation. This could be reinforced if greater tariffs resulted in lower need for euro area exports and to nations with overcapacity rerouting their exports to the euro location. Trade stress might result in higher volatility and danger hostility in monetary markets, which would weigh on domestic need and would therefore also lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by pressing up import costs and contributing to capability constraints in the domestic economy. A boost in defence and facilities spending might also raise inflation over the medium term. Extreme weather occasions, and the unfolding environment crisis more broadly, could drive up food costs by more than anticipated.

Financial and financial conditions

Risk-free interest rates have actually stayed broadly unchanged given that our last conference. Equity prices have risen, and corporate bond spreads have actually narrowed, in response to more positive news about global trade policies and the improvement in international threat belief.

Our past rate of interest cuts continue to make corporate loaning more economical. The typical rates of interest on brand-new loans to companies declined to 3.8 per cent in April, from 3.9 per cent in March. The cost of releasing market-based debt was the same 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 percent in March, while business bond issuance was controlled. The average rate of interest on brand-new mortgages remained at 3. 3 percent in April, while growth in mortgage loaning increased to 1.9 percent.

In line with our financial policy strategy, the Governing Council thoroughly assessed the links in between financial policy and financial stability. While euro area banks remain resistant, more comprehensive monetary stability threats remain elevated, in specific owing to extremely unpredictable and unpredictable global trade policies. Macroprudential policy stays the first line of defence against the accumulation of financial vulnerabilities, improving resilience and protecting macroprudential space.

The Governing Council today chose to reduce the 3 essential 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 monetary policy stance - is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are identified to make sure that inflation stabilises sustainably at our two per cent medium-term target. Especially in existing conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the appropriate financial policy stance. Our interest rate decisions will be based upon our assessment of the inflation outlook in light of the inbound financial and financial data, the characteristics 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 make sure that inflation stabilises sustainably at our medium-term target and to protect the smooth functioning of financial policy transmission. (Compiled by Toby Chopra)