June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's statement after the bank's policy meeting 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 welcome you to our press conference.

The Governing Council today decided to decrease the three essential ECB interest rates by 25 basis points. In specific, the decision to reduce the deposit center rate - the rate through which we guide the monetary policy position - is based on our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our two percent medium-term target. In the baseline of the brand-new Eurosystem staff forecasts, headline inflation is set to average 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The down modifications compared with the March projections, by 0.3 portion points for both 2025 and 2026, primarily show lower assumptions for energy costs and a more powerful euro. Staff expect inflation leaving out energy and food to typical 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged given that March.

Staff see real GDP development averaging 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 shows a stronger than anticipated first quarter combined with weaker potential customers for the remainder 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 government investment in defence and facilities will significantly support development over the medium term. Higher genuine earnings and a robust labour market will enable homes to spend more. Together with more favourable funding conditions, this must make the economy more resilient to international shocks.

In the context of high uncertainty, personnel also evaluated a few of the systems by which various trade policies might impact growth and inflation under some alternative illustrative scenarios. These situations will be released with the personnel projections on our website. Under this scenario analysis, a further escalation of trade stress over the coming months would lead to development and inflation being below the baseline forecasts. By contrast, if trade tensions were resolved with a benign result, development and, to a lower extent, inflation would be greater than in the baseline forecasts.

Most procedures of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a continual basis. Wage growth is still elevated but continues to moderate visibly, and profits are partly buffering its impact on inflation. The concerns that increased unpredictability and an unstable market action to the trade stress in April would have a tightening up influence on funding conditions have actually eased.

We are to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the proper monetary policy position. Our interest rate decisions will be based on our assessment of the inflation outlook due to the inbound financial and monetary data, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate course.

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

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

Economic activity

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

In line with the personnel forecasts, study data point general to some weaker prospects in the near term. While production has enhanced, partly since trade has actually been advanced in anticipation of greater tariffs, the more locally oriented services sector is slowing. Higher tariffs and a more powerful euro are expected to make it harder for companies to export. High unpredictability is anticipated to weigh on financial investment.

At the same time, several factors are keeping the economy durable and must support development over the medium term. A strong labour market, rising real incomes, robust private sector balance sheets and easier financing conditions, in part due to the fact that of our previous rate of interest cuts, ought to all assist consumers and firms withstand the fallout from an unstable international environment. Recently announced steps to step up defence and facilities financial investment ought to also bolster development.

In the present geopolitical environment, it is much more immediate for fiscal 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 propositions, consisting of on simplification, need to be promptly adopted. This includes completing the cost savings and financial investment union, following a clear and ambitious schedule. It is likewise essential to quickly establish the legal structure to prepare the ground for the possible intro of a digital euro. Governments must ensure sustainable public finances in line with the EU ´ s economic governance framework, while prioritising essential growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation decreased to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash estimate. Energy price inflation remained at -3.6 per cent. Food cost inflation rose to 3.3 percent, from 3.0 percent the month previously. 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 generally due to the fact that rates for travel services around the Easter vacations increased 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 suggested by inbound information on negotiated earnings and available country data on payment per employee. The ECB ´ s wage tracker points to a more easing of worked out wage growth in 2025, while the personnel projections see wage development falling to listed below 3 per cent in 2026 and 2027. While lower energy costs and a more powerful 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 most measures 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 stay tilted to the drawback. A further escalation in international trade stress and associated uncertainties might lower euro location development by moistening exports and dragging down financial investment and consumption. A wear and tear in monetary market sentiment could lead to tighter financing conditions and greater danger hostility, and make firms and homes less willing to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical tensions were solved quickly, this might lift sentiment and spur activity. An additional boost in defence and facilities spending, together with productivity-enhancing reforms, would likewise add to growth.

The outlook for euro location inflation is more uncertain than usual, as an outcome of the volatile worldwide trade policy environment. Falling energy costs and a more powerful euro could put further downward pressure on inflation. This could be strengthened if greater tariffs resulted in lower demand for euro location exports and to nations with overcapacity rerouting their exports to the euro area. Trade stress could cause greater volatility and danger aversion in monetary markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by pushing up import rates and contributing to capacity constraints in the domestic economy. An increase in defence and facilities spending could also raise inflation over the medium term. Extreme weather condition occasions, and the unfolding climate crisis more broadly, could drive up food rates by more than expected.

Financial and monetary conditions

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

Our previous rates of interest cuts continue to make business borrowing less pricey. The typical rates of interest on brand-new loans to companies declined to 3.8 percent in April, from 3.9 percent in March. The expense of releasing market-based debt was the same at 3.7 per cent. Bank lending to firms continued to reinforce slowly, growing by an annual rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was controlled. The typical rate of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage financing increased to 1.9 per cent.

In line with our financial policy technique, the Governing Council completely evaluated the links between financial policy and financial stability. While euro location banks stay resilient, wider monetary stability threats stay elevated, in specific owing to extremely unsure and unstable worldwide trade policies. Macroprudential policy stays the first line of defence against the build-up of financial vulnerabilities, enhancing resilience and protecting macroprudential area.

The Governing Council today decided to reduce the 3 essential ECB rate of interest by 25 basis points. In particular, the choice to lower 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 financial policy transmission. We are identified to guarantee that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting technique to figuring out the suitable financial policy position. Our interest rate decisions will be based upon our assessment of the inflation outlook because of the inbound economic and monetary data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.

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