June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's statement after the bank's policy conference on Thursday:
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Link to declaration on ECB website: https://www.[ecb.europa](https://shubhniveshpropmart.com).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 interest rates 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 upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is presently at around our 2 per cent medium-term target. In the standard of the new Eurosystem staff forecasts, headline inflation is set to average 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The down revisions compared with the March forecasts, by 0.3 portion points for both 2025 and 2026, primarily show lower assumptions for energy costs and a more powerful euro. Staff anticipate inflation excluding energy and food to typical 2.4 per cent 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 per cent in 2027. The unrevised growth projection for 2025 shows a stronger than expected very first quarter combined with weaker prospects for the rest of the year. While the uncertainty surrounding trade policies is anticipated to weigh on company investment and exports, specifically in the short term, rising government investment in defence and facilities will significantly support development over the medium term. Higher genuine earnings and a robust labour market will enable families to invest more. Together with more favourable financing conditions, this need to make the economy more resilient to international shocks.

In the context of high uncertainty, staff likewise evaluated some of the systems by which various trade policies could affect development and inflation under some alternative illustrative circumstances. These situations will be released with the personnel forecasts on our website. Under this scenario analysis, an additional escalation of trade stress over the coming months would lead to development and inflation being below the baseline projections. By contrast, if trade stress were resolved with a benign outcome, growth and, to a lesser level, inflation would be greater than in the standard projections.

Most measures of underlying inflation suggest that inflation will settle at around our two percent medium-term target on a sustained basis. Wage development is still elevated however continues to moderate noticeably, and revenues are partly buffering its influence on inflation. The concerns that increased unpredictability and a volatile market action to the trade stress in April would have a tightening effect on funding conditions have reduced.

We are determined to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting technique to identifying the appropriate financial policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook in light of the inbound financial and financial information, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.

The decisions taken today are set out in a press release readily available on our site.

I will now detail in more detail how we see the economy and inflation establishing and will then discuss 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 estimate. Unemployment, at 6.2 per cent in April, is at its most affordable level because the launch of the euro, and work grew by 0.3 percent in the first quarter of the year, according to the flash quote.

In line with the personnel forecasts, study information point total to some weaker potential customers in the near term. While production has enhanced, partially since 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 expected to make it harder for firms to export. High uncertainty is anticipated to weigh on investment.

At the same time, numerous factors are keeping the economy resilient and must support growth over the medium term. A strong labour market, increasing genuine incomes, robust personal sector balance sheets and simpler funding conditions, in part since of our previous interest rate cuts, ought to all assist consumers and companies hold up against the fallout from a volatile international environment. Recently announced measures to step up defence and infrastructure investment should likewise reinforce development.

In today geopolitical environment, it is much more immediate for financial and structural policies to make the euro location economy more efficient, competitive and durable. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, consisting of on simplification, ought to be swiftly adopted. This consists of completing the cost savings and investment union, following a clear and ambitious schedule. It is also essential to quickly develop the legislative framework to prepare the ground for the prospective introduction of a digital euro. Governments ought to ensure sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising vital growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy rate inflation stayed at -3.6 per cent. Food rate inflation increased to 3.3 per cent, from 3.0 percent the month before. Goods inflation was unchanged at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had jumped in April primarily since costs for travel services around the Easter vacations increased by more than expected.

Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our two percent medium-term target. Labour costs are gradually moderating, as shown by inbound data on worked out earnings and offered nation information on payment per staff member. The ECB ´ s wage tracker points to an additional easing of worked out wage development in 2025, while the personnel forecasts see wage growth being up to below 3 percent in 2026 and 2027. While lower energy rates and a stronger 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, likely reflecting news about trade stress. But most procedures of longer-term inflation expectations continue to stand at around 2 percent, which supports the stabilisation of inflation around our target.

Risk evaluation
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Risks to financial growth stay tilted to the disadvantage. A further escalation in international trade tensions and associated unpredictabilities might decrease euro area growth by dampening exports and dragging down financial investment and intake. A degeneration in monetary market sentiment could cause tighter funding conditions and greater danger hostility, and make companies and households less going to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the tragic dispute in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical tensions were fixed promptly, this might raise belief and spur activity. A further increase in defence and infrastructure spending, together with productivity-enhancing reforms, would also add to growth.

The outlook for euro location inflation is more uncertain than usual, as a result of the volatile global trade policy environment. Falling energy costs and a stronger euro could put more down pressure on inflation. This might be reinforced if greater tariffs caused lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions might lead to greater volatility and risk hostility in financial markets, which would weigh on domestic need and would thereby likewise lower inflation. By contrast, a fragmentation of international supply chains could raise inflation by rising import prices and contributing to capacity restrictions in the domestic economy. An increase in defence and infrastructure costs could also 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 rates of interest have remained broadly unchanged given that our last meeting. Equity rates have actually risen, and corporate bond spreads have narrowed, in action to more favorable news about global trade policies and the enhancement in international danger sentiment.

Our past interest rate cuts continue to make business loaning less costly. The typical rate of interest on new loans to companies decreased 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 lending to firms continued to enhance slowly, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while corporate bond issuance was subdued. The typical interest rate on new mortgages stayed at 3. 3 per cent in April, while growth in mortgage financing increased to 1.9 percent.

In line with our monetary policy method, the Governing Council thoroughly examined the links in between monetary policy and financial stability. While euro location banks remain durable, broader monetary stability dangers stay raised, in specific owing to highly uncertain and volatile global trade policies. Macroprudential policy stays the very first line of against the build-up of monetary vulnerabilities, enhancing durability and preserving macroprudential area.

The Governing Council today chose to decrease the three key ECB rate of interest by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we guide the financial policy position - is based on our updated evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission. We are identified to ensure that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to figuring out the appropriate monetary policy position. Our rates of interest choices will be based upon our evaluation of the inflation outlook because of the incoming economic and financial data, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate path.

In any case, we stand all set 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 performance of monetary policy transmission. (Compiled by Toby Chopra)