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 site: https://www.ecb.europa.eu/press/press_conference/monetary-policy-statement/2025/html/ecb.is250605~f00a36ef2b.en.html
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Good afternoon, the Vice-President and I invite you to our press conference.

The Governing Council today chose to reduce the 3 crucial ECB interest rates by 25 basis points. In particular, the choice to decrease the deposit facility rate - the rate through which we steer the monetary policy position - is based on 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 per cent medium-term target. In the baseline of the new Eurosystem staff forecasts, headline inflation is set to average 2.0 percent in 2025, 1.6 percent in 2026 and 2.0 per cent in 2027. The downward revisions compared with the March forecasts, by 0.3 portion points for both 2025 and 2026, mainly reflect lower assumptions for energy rates and a stronger euro. Staff expect inflation excluding energy and food to typical 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same considering that March.

Staff see genuine GDP development averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth forecast for 2025 shows a stronger than anticipated first quarter integrated with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on company investment and exports, specifically in the short-term, rising government investment in defence and infrastructure will significantly support development over the medium term. Higher genuine earnings and a robust labour market will allow households to spend more. Together with more beneficial funding conditions, this should make the economy more resistant to international shocks.

In the context of high unpredictability, staff also examined some of the systems by which various trade policies could affect development and inflation under some alternative illustrative scenarios. These situations will be published with the staff projections on our site. 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 resolved with a benign result, development and, to a lesser extent, inflation would be higher than in the baseline forecasts.

Most measures of underlying inflation recommend that inflation will settle at around our two percent medium-term target on a sustained basis. Wage growth is still raised but continues to moderate visibly, and profits are partly buffering its effect on inflation. The concerns that increased unpredictability and an unstable market response to the trade stress in April would have a tightening influence on funding conditions have relieved.

We are figured out to ensure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in existing conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting method to determining the appropriate monetary policy stance. Our rates of interest choices will be based on our evaluation of the inflation outlook due to the incoming 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 path.

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

I will now describe in more information how we see the economy and inflation developing and will then discuss our assessment of financial and monetary conditions.

Economic activity

The economy grew by 0.3 per cent in the very first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 percent in April, is at its lowest level because 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, survey data point overall to some weaker prospects in the near term. While production has reinforced, partly because trade has been brought forward in anticipation of greater 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 unpredictability is expected to weigh on investment.

At the same time, several aspects are keeping the economy resistant and ought to support development over the medium term. A strong labour market, increasing genuine incomes, robust economic sector balance sheets and simpler financing conditions, in part since of our previous rates of interest cuts, should all assist consumers and companies withstand the fallout from an unpredictable international environment. Recently revealed steps to step up defence and infrastructure financial investment ought to also strengthen development.

In the present geopolitical environment, it is much more urgent for fiscal and structural policies to make the euro location economy more productive, competitive and resistant. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, including on simplification, ought to be quickly adopted. This includes completing the cost savings and investment union, following a clear and ambitious timetable. It is also important to rapidly establish the legal framework to prepare the ground for the possible intro of a digital euro. Governments should ensure sustainable public financial resources in line with the EU ´ s financial governance framework, while prioritising essential 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 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 per cent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had jumped in April generally due to the fact that prices for travel services around the Easter holidays increased by more than expected.

Most signs of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour costs are gradually moderating, as indicated by incoming data on negotiated earnings and available nation data on settlement per staff member. The ECB ´ s wage tracker indicate a more easing of worked out wage development in 2025, while the see wage development being up to listed 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, likely showing news about trade stress. But the majority of steps 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 development remain tilted to the downside. An additional escalation in international trade tensions and associated uncertainties might reduce euro location growth by moistening exports and dragging down financial investment and consumption. A deterioration in financial market sentiment might result in tighter funding conditions and greater risk hostility, and make companies and families less ready to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the terrible dispute in the Middle East, stay a significant source of uncertainty. By contrast, if trade and geopolitical stress were solved swiftly, this might lift belief and spur activity. A more boost in defence and infrastructure spending, together with productivity-enhancing reforms, would likewise add to growth.

The outlook for euro location inflation is more unsure than normal, as an outcome of the volatile worldwide trade policy environment. Falling energy prices and a more powerful euro could put further down pressure on inflation. This might be strengthened if greater tariffs resulted in lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro area. Trade tensions could cause higher volatility and risk hostility in monetary markets, which would weigh on domestic need and would consequently likewise lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by pushing up import prices and including to capacity constraints in the domestic economy. An increase in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, might increase food costs by more than expected.

Financial and monetary conditions

Risk-free interest rates have actually stayed broadly the same considering that our last meeting. Equity costs have actually risen, and corporate bond spreads have actually narrowed, in response to more positive news about global trade policies and the improvement in worldwide danger belief.

Our past rates of interest cuts continue to make business loaning less expensive. The average rates of interest on new loans to firms decreased to 3.8 percent in April, from 3.9 per cent in March. The expense of providing market-based financial obligation was the same at 3.7 percent. Bank lending to companies continued to reinforce gradually, growing by a yearly rate of 2.6 per cent in April after 2.4 per cent in March, while corporate bond issuance was subdued. The typical interest rate on new mortgages remained at 3. 3 per cent in April, while development in mortgage loaning increased to 1.9 per cent.

In line with our financial policy method, the Governing Council completely assessed the links in between financial policy and monetary stability. While euro location banks stay resistant, more comprehensive monetary stability dangers stay raised, in particular owing to highly unpredictable and volatile worldwide trade policies. Macroprudential policy remains the very first line of defence versus the build-up of monetary vulnerabilities, enhancing strength and maintaining macroprudential space.

The Governing Council today chose to decrease the 3 essential ECB rates of interest by 25 basis points. In particular, the decision to lower the deposit facility rate - the rate through which we guide the financial policy position - is based upon our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are determined to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in current conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate financial policy position. Our rates of interest choices will be based on our assessment of the inflation outlook in light of the inbound financial and financial data, 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 prepared to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth performance of monetary policy transmission. (Compiled by Toby Chopra)