June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde’s statement after the bank’s policy meeting on Thursday:
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Link to statement 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 invite you to our interview.

The Governing Council today decided to decrease the three key ECB interest rates by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we steer the financial policy stance - is based upon 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 two percent medium-term target. In the baseline of the brand-new Eurosystem staff projections, 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 to the March projections, by 0.3 percentage points for both 2025 and 2026, generally show lower presumptions for energy rates and a more powerful euro. Staff anticipate inflation omitting energy and food to typical 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged considering that March.

Staff see real GDP growth averaging 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development projection for 2025 shows a more powerful than anticipated very first quarter combined with weaker prospects for the remainder of the year. While the unpredictability surrounding trade policies is anticipated to weigh on organization financial investment and exports, particularly in the brief term, increasing federal government investment in defence and facilities will significantly support growth over the medium term. Higher real incomes and a robust labour market will enable families to invest more. Together with more favourable financing conditions, this need to make the economy more durable to worldwide shocks.

In the context of high uncertainty, staff also examined a few of the systems by which various trade policies could impact growth and inflation under some alternative illustrative scenarios. These scenarios will be released with the personnel projections on our website. Under this situation analysis, a more escalation of trade stress over the coming months would lead to growth and inflation being listed below the standard projections. By contrast, if trade tensions were fixed with a benign outcome, development and, to a lower extent, inflation would be higher than in the baseline projections.

Most steps of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is still elevated but continues to moderate noticeably, and profits are partly buffering its influence on inflation. The issues that increased unpredictability and an unstable market reaction to the trade tensions in April would have a tightening influence on financing conditions have eased.

We are determined to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting method to identifying the proper financial policy position. Our rates of interest choices will be based on our assessment of the inflation outlook in light of the inbound economic 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 press release available on our site.

I will now describe in more information how we see the economy and inflation developing and will then describe our evaluation of monetary 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 price quote. Unemployment, at 6.2 percent in April, is at its most affordable level because the launch of the euro, and work grew by 0.3 per cent in the first quarter of the year, according to the flash quote.

In line with the staff projections, study data point general to some weaker prospects 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 domestically oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for companies to export. High unpredictability is expected to weigh on investment.

At the exact same time, several aspects are keeping the economy resistant and must support growth over the medium term. A strong labour market, increasing real earnings, robust economic sector balance sheets and simpler funding conditions, in part since of our past rates of interest cuts, should all assist consumers and companies hold up against the fallout from an unstable global environment. Recently announced steps to step up defence and facilities financial investment need to also reinforce development.

In today geopolitical environment, it is much more immediate for financial and structural policies to make the euro area economy more productive, competitive and resistant. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its propositions, consisting of on simplification, should be promptly adopted. This includes completing the cost savings and financial investment union, following a clear and enthusiastic schedule. It is likewise crucial to rapidly develop the legal framework to prepare the ground for the potential introduction of a digital euro. Governments need to ensure sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising necessary 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 percent. Food rate inflation rose to 3.3 per cent, from 3.0 per cent 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 leapt in April primarily due to the fact that costs for travel services around the Easter vacations increased by more than expected.

Most indications of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour expenses are gradually moderating, as indicated by inbound data on worked out earnings and available country information on compensation per employee. The ECB ´ s wage tracker indicate a further easing of worked out wage development in 2025, while the staff projections see wage development falling to listed 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 to return to target in 2027.

Short-term customer inflation expectations edged up in April, most likely showing news about trade tensions. 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 evaluation

Risks to financial growth stay tilted to the downside. A more escalation in worldwide trade stress and associated unpredictabilities could lower euro area growth by dampening exports and dragging down financial investment and intake. A degeneration in monetary market belief might cause tighter funding conditions and higher threat aversion, and make companies and households less willing to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the tragic conflict in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical stress were fixed swiftly, this could lift belief and spur activity. A further increase in defence and facilities spending, together with productivity-enhancing reforms, would likewise contribute to growth.

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

Financial and financial conditions

Risk-free rates of interest have remained broadly the same since our last conference. Equity costs have increased, and corporate bond spreads have actually narrowed, in reaction to more positive news about international trade policies and the improvement in worldwide danger belief.

Our previous interest rate cuts continue to make business borrowing less pricey. The typical rates of interest on new loans to companies declined to 3.8 percent in April, from 3.9 per cent in March. The cost of releasing market-based debt was unchanged at 3.7 per cent. Bank providing to companies continued to enhance slowly, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was suppressed. The average rate of interest on brand-new mortgages remained at 3. 3 percent in April, while growth in mortgage financing increased to 1.9 percent.

In line with our financial policy strategy, the Governing Council completely evaluated the links in between financial policy and monetary stability. While euro area banks stay resistant, broader monetary stability risks stay elevated, in specific owing to extremely unsure and volatile worldwide trade policies. Macroprudential policy remains the first line of defence against the accumulation of financial vulnerabilities, boosting durability and maintaining macroprudential space.

The Governing Council today chose to reduce the three essential ECB rate of interest by 25 basis points. In specific, the choice to decrease the deposit facility rate - the rate through which we steer the financial policy position - is based upon our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are identified to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in current conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting method to figuring out the proper monetary policy position. Our interest rate decisions will be based on our assessment of the inflation outlook because of the incoming financial and financial information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate course.

In any case, we stand ready to change 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)