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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 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 interview.

The Governing Council today chose to lower the 3 key ECB rate of interest by 25 basis points. In specific, the decision to reduce the deposit facility rate - the rate through which we steer the financial policy position - is based upon our upgraded evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our 2 per cent medium-term target. In the baseline of the 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 to the March forecasts, by 0.3 portion points for both 2025 and 2026, mainly show lower assumptions for energy costs and a stronger euro. Staff expect inflation omitting energy and food to typical 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly the same considering that March.

Staff see real GDP growth 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 shows a stronger than expected first quarter integrated with weaker potential customers for the remainder of the year. While the unpredictability surrounding trade policies is expected to weigh on service financial investment and exports, particularly in the brief term, increasing federal government financial investment in defence and infrastructure will progressively support growth over the medium term. Higher genuine incomes and a robust labour market will permit homes to spend more. Together with more beneficial financing conditions, this need to make the economy more durable to worldwide shocks.

In the context of high uncertainty, personnel likewise assessed a few of the mechanisms by which different trade policies could impact development and under some alternative illustrative circumstances. These scenarios will be published with the personnel forecasts on our site. Under this situation analysis, an additional escalation of trade tensions over the coming months would lead to growth and inflation being below the standard forecasts. By contrast, if trade tensions were fixed with a benign outcome, development and, to a lower level, inflation would be higher than in the baseline projections.

Most procedures of underlying inflation suggest that inflation will settle at around our two percent medium-term target on a continual basis. Wage growth is still raised however continues to moderate noticeably, and profits are partly buffering its impact on inflation. The issues that increased unpredictability and an unpredictable market response to the trade stress in April would have a tightening up influence on financing conditions have actually alleviated.

We are identified to ensure that inflation stabilises sustainably at our two 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 suitable financial policy stance. Our rates of interest decisions will be based on our evaluation of the inflation outlook because of the inbound financial and financial information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.

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

I will now detail in more information how we see the economy and inflation establishing and will then discuss our evaluation of financial and financial conditions.

Economic activity

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

In line with the personnel projections, study information point total to some weaker potential customers in the near term. While manufacturing has strengthened, partially because trade has actually been advanced in anticipation of greater tariffs, the more domestically 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 anticipated to weigh on investment.

At the exact same time, numerous aspects are keeping the economy resistant and ought to support development over the medium term. A strong labour market, rising genuine earnings, robust personal sector balance sheets and easier financing conditions, in part because of our previous interest rate cuts, should all help customers and firms stand up to the fallout from an unpredictable international environment. Recently announced measures to step up defence and facilities financial investment ought to also bolster development.

In the present geopolitical environment, it is much more immediate for financial and structural policies to make the euro location economy more efficient, competitive and resistant. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, including on simplification, need to be quickly embraced. This consists of finishing the cost savings and investment union, following a clear and ambitious timetable. It is also important to quickly establish the legal framework to prepare the ground for the prospective introduction of a digital euro. Governments need to make sure 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 declined to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy price inflation remained at -3.6 per cent. Food rate inflation rose to 3.3 percent, from 3.0 per cent 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 percent in April. Services inflation had actually jumped in April primarily because costs for travel services around the Easter vacations went up by more than anticipated.

Most signs of underlying inflation recommend that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour costs are gradually moderating, as shown by incoming information on negotiated wages and readily available country information on compensation per employee. The ECB ´ s wage tracker points to an additional easing of worked out wage development in 2025, while the personnel projections see wage growth falling to below 3 percent in 2026 and 2027. While lower energy prices and a more powerful euro are putting downward 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 tensions. But the majority of measures of longer-term inflation expectations continue to stand at around 2 per cent, which supports the stabilisation of inflation around our target.

Risk evaluation

Risks to financial growth remain tilted to the disadvantage. An additional escalation in global trade stress and associated uncertainties could lower euro area development by moistening exports and dragging down investment and usage. A wear and tear in monetary market belief could cause tighter funding conditions and higher risk aversion, and confirm and families less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the tragic conflict in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical tensions were dealt with quickly, this could raise belief and spur activity. An additional increase in defence and facilities costs, together with productivity-enhancing reforms, would likewise contribute to growth.

The outlook for euro area 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 additional downward pressure on inflation. This could be strengthened if higher tariffs resulted in lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro area. Trade stress could cause greater volatility and threat hostility in monetary markets, which would weigh on domestic need and would thereby also lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by pushing up import costs and contributing to capability restraints in the domestic economy. An increase in defence and facilities spending might likewise raise inflation over the medium term. Extreme weather occasions, and the unfolding climate crisis more broadly, might drive up food rates by more than expected.

Financial and monetary conditions

Risk-free rate of interest have actually remained broadly the same because our last meeting. Equity rates have actually increased, and corporate bond spreads have narrowed, in action to more favorable news about global trade policies and the improvement in international threat sentiment.

Our previous rates of interest cuts continue to make business loaning less costly. The typical rates of interest on brand-new loans to companies decreased to 3.8 per cent in April, from 3.9 percent in March. The cost of issuing market-based financial obligation was unchanged at 3.7 percent. Bank lending to firms 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 controlled. The average rate of interest on new mortgages stayed at 3. 3 percent in April, while growth in mortgage lending increased to 1.9 percent.

In line with our financial policy technique, the Governing Council thoroughly examined the links between financial policy and financial stability. While euro area banks remain resistant, more comprehensive financial stability risks remain raised, in particular owing to extremely uncertain and volatile international trade policies. Macroprudential policy remains the first line of defence versus the build-up of financial vulnerabilities, boosting strength and maintaining macroprudential space.

The Governing Council today chose to reduce the three essential ECB rates of interest by 25 basis points. In particular, the decision to decrease the deposit facility rate - the rate through which we guide the financial policy stance - is based upon our updated evaluation 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 two percent medium-term target. Especially in current conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting approach to identifying the suitable financial policy position. Our interest rate decisions will be based upon our assessment of the inflation outlook due to the inbound economic and financial information, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate course.

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