June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's statement after the bank's policy conference 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 lower the 3 essential ECB interest rates by 25 basis points. In particular, the decision to decrease the deposit center rate - the rate through which we guide the monetary policy position - is based upon our upgraded evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

Inflation is presently at around our 2 percent medium-term target. In the baseline of the new Eurosystem personnel forecasts, 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 downward modifications compared to the March forecasts, by 0.3 percentage points for both 2025 and 2026, mainly show lower presumptions for energy rates and a stronger euro. Staff anticipate inflation omitting energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly the same because March.

Staff see genuine GDP growth averaging 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development forecast for 2025 reflects a stronger than expected very first quarter integrated with weaker potential customers for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on business financial investment and exports, especially in the short-term, rising federal government investment in defence and infrastructure will increasingly support growth 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 ought to make the economy more resilient to global shocks.

In the context of high uncertainty, personnel likewise examined some of the mechanisms by which different trade policies might impact growth and inflation under some alternative illustrative situations. These scenarios will be published with the staff projections on our website. Under this scenario analysis, a more escalation of trade tensions over the coming months would result in growth and inflation being listed below the standard projections. By contrast, if trade stress were resolved with a benign outcome, development and, to a lesser extent, inflation would be greater than in the standard forecasts.

Most steps 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 but continues to moderate noticeably, and earnings are partially buffering its effect on inflation. The concerns that increased uncertainty and a volatile market action to the trade tensions in April would have a tightening up impact on financing conditions have actually eased.

We are identified to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting approach to identifying the appropriate monetary policy stance. Our rates of interest decisions will be based upon our evaluation of the inflation outlook due to the incoming financial and financial data, the characteristics of underlying inflation and the strength of monetary 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 website.

I will now outline in more information how we see the economy and inflation establishing and will then explain our evaluation of financial 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 per cent in April, is at its lowest level since the launch of the euro, and work grew by 0.3 percent in the very first quarter of the year, according to the flash estimate.

In line with the staff projections, study data point overall to some weaker potential customers in the near term. While manufacturing has actually strengthened, partly because 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 factors are keeping the economy resistant and must support growth over the medium term. A strong labour market, increasing genuine incomes, robust private sector balance sheets and easier financing conditions, in part because of our past interest rate cuts, should all assist customers and firms withstand the fallout from a volatile global environment. Recently announced procedures to step up defence and facilities investment ought to also bolster development.

In the present geopolitical environment, it is a lot more urgent for financial and structural policies to make the euro area economy more efficient, competitive and resistant. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its proposals, consisting of on simplification, should be swiftly adopted. This consists of finishing the savings and investment union, following a clear and ambitious schedule. It is likewise crucial to rapidly develop the legislative structure to prepare the ground for the potential intro of a digital euro. Governments should make sure sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising vital growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation decreased to 1.9 percent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy rate inflation stayed at -3.6 per cent. Food price inflation increased to 3.3 percent, from 3.0 percent the month in the past. Goods inflation was the same at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had leapt in April generally because rates for travel services around the Easter holidays went up by more than anticipated.

Most signs of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour expenses are gradually moderating, as shown by inbound data on negotiated wages and available nation information on settlement per staff member. The ECB ´ s wage tracker indicate a further easing of worked out wage growth in 2025, while the personnel forecasts see wage development being up to below 3 percent in 2026 and 2027. While lower energy prices and a stronger euro are putting down pressure on inflation in the near term, inflation is anticipated to go back to target in 2027.

Short-term consumer inflation expectations edged up in April, most likely reflecting news about trade stress. But a lot of procedures 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 development remain tilted to the disadvantage. A more escalation in global trade stress and associated unpredictabilities could lower euro location development by moistening exports and dragging down financial investment and usage. A deterioration in monetary market belief could cause tighter financing conditions and higher risk hostility, and make firms and families less prepared to invest and take in. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the tragic dispute in the Middle East, remain a significant source of uncertainty. By contrast, if trade and geopolitical tensions were resolved quickly, this could raise belief and spur activity. A more boost in defence and facilities costs, together with productivity-enhancing reforms, would likewise contribute 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 could put more downward pressure on inflation. This could be strengthened if greater tariffs led to lower demand for euro area exports and to nations with overcapacity rerouting their exports to the euro area. Trade tensions could lead to higher volatility and risk aversion in monetary markets, which would weigh on domestic need and would thus also lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by rising import costs and adding to capacity restrictions in the domestic economy. An increase in defence and facilities spending might also raise inflation over the medium term. Extreme weather condition occasions, and the unfolding environment crisis more broadly, could increase food rates by more than expected.

Financial and monetary conditions

Risk-free rates of interest have actually stayed broadly the same since our last conference. Equity costs have actually increased, and business bond spreads have narrowed, in response to more favorable news about worldwide trade policies and the enhancement in global danger sentiment.

Our past rates of interest cuts continue to make business borrowing more economical. The average interest rate on new loans to firms decreased to 3.8 per cent in April, from 3.9 percent in March. The cost of issuing market-based debt was unchanged at 3.7 per cent. Bank lending to companies continued to reinforce 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 rates of interest on brand-new mortgages remained at 3. 3 per cent in April, while development in mortgage financing increased to 1.9 per cent.

In line with our financial policy technique, the Governing Council thoroughly examined the links in between monetary policy and financial stability. While euro location banks remain durable, more comprehensive financial stability risks stay raised, in specific owing to extremely uncertain and unpredictable international trade policies. Macroprudential policy remains the very first line of defence against the accumulation of financial vulnerabilities, boosting strength and protecting macroprudential space.

The Governing Council today decided to decrease the three essential ECB rate of interest by 25 basis points. In specific, the decision to reduce the deposit center 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 monetary policy transmission. We are figured out to make sure 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 identifying the appropriate financial policy stance. Our rate of interest decisions will be based upon our evaluation of the inflation outlook because of the inbound 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 path.

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