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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 meeting 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 invite you to our interview.

The Governing Council today to decrease the 3 key ECB rates of interest by 25 basis points. In particular, the decision to decrease the deposit center rate - the rate through which we guide the monetary policy position - is based upon our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our two per cent medium-term target. In the standard of the brand-new Eurosystem staff forecasts, heading inflation is set to typical 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 per cent in 2027. The down revisions compared with the March forecasts, by 0.3 percentage points for both 2025 and 2026, mainly show lower presumptions for energy rates and a more powerful euro. Staff anticipate inflation leaving out energy and food to average 2.4 per cent 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 growth forecast for 2025 reflects a stronger than expected first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on organization financial investment and exports, particularly in the short-term, rising government financial investment in defence and infrastructure will progressively support growth over the medium term. Higher genuine earnings and a robust labour market will enable homes to invest more. Together with more favourable funding conditions, this need to make the economy more resilient to international shocks.

In the context of high unpredictability, staff also evaluated some of the systems by which various trade policies could affect growth and inflation under some alternative illustrative circumstances. These circumstances will be published with the staff projections on our website. Under this scenario analysis, a more escalation of trade tensions over the coming months would result in development and inflation being below the standard forecasts. By contrast, if trade tensions were fixed with a benign outcome, development and, to a lower degree, inflation would be greater than in the baseline forecasts.

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

We are identified to guarantee that inflation stabilises sustainably at our two per cent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to identifying the suitable financial policy position. Our rate of interest choices will be based on our evaluation of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate course.

The choices taken today are set out in a press release available on our website.

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

Economic activity

The economy grew by 0.3 per cent in the first quarter of 2025, according to Eurostat ´ s flash price quote. Unemployment, at 6.2 per cent in April, is at its lowest level since the launch of the euro, and work grew by 0.3 percent in the very first quarter of the year, according to the flash price quote.

In line with the personnel forecasts, survey data point total to some weaker potential customers in the near term. While production has actually enhanced, partially because trade has been brought forward in anticipation of greater tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a stronger 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 needs to support growth over the medium term. A strong labour market, increasing real incomes, robust economic sector balance sheets and much easier financing conditions, in part because of our previous rates of interest cuts, must all help customers and firms hold up against the fallout from a volatile worldwide environment. Recently announced procedures to step up defence and facilities investment should likewise strengthen growth.

In the present geopolitical environment, it is even more immediate for fiscal and structural policies to make the euro area economy more productive, competitive and resistant. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its proposals, including on simplification, must be promptly embraced. This consists of finishing the cost savings and financial investment union, following a clear and enthusiastic schedule. It is also important to quickly establish the legislative structure to prepare the ground for the possible introduction of a digital euro. Governments need to ensure sustainable public financial resources in line with the EU ´ s financial governance framework, while prioritising important growth-enhancing structural reforms and tactical investment.

Inflation

Annual inflation declined to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash quote. Energy cost inflation stayed at -3.6 per cent. Food rate inflation increased 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 actually jumped in April generally since rates for travel services around the Easter vacations went up by more than expected.

Most indicators of underlying inflation recommend that inflation will stabilise sustainably at our two per cent medium-term target. Labour costs are gradually moderating, as suggested by inbound data on worked out wages and readily available nation information on settlement per worker. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the personnel forecasts see wage growth being up 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 expected to go back to target in 2027.

Short-term customer inflation expectations edged up in April, likely showing news about trade stress. 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
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Risks to economic development remain tilted to the downside. A further escalation in global trade tensions and associated uncertainties might decrease euro area development by moistening exports and dragging down investment and consumption. A deterioration in financial market belief could lead to tighter financing conditions and higher risk aversion, and confirm and homes less happy to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the tragic dispute in the Middle East, remain a significant source of uncertainty. By contrast, if trade and geopolitical stress were fixed promptly, this could lift sentiment and spur activity. A more increase in defence and facilities costs, together with productivity-enhancing reforms, would likewise add to development.

The outlook for euro location inflation is more uncertain than typical, as an outcome of the volatile international trade policy environment. Falling energy rates and a more powerful euro could put additional downward pressure on inflation. This could be enhanced if greater tariffs resulted in lower need for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions could result in higher volatility and risk aversion in financial markets, which would weigh on domestic demand and would consequently also lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by rising import prices and contributing to capability restraints in the domestic economy. An increase in defence and infrastructure spending could likewise raise inflation over the medium term. Extreme weather occasions, and the unfolding climate crisis more broadly, could increase food costs by more than anticipated.

Financial and financial conditions

Risk-free rate of interest have actually stayed broadly unchanged because our last conference. Equity costs have increased, and corporate bond spreads have actually narrowed, in action to more positive news about global trade policies and the enhancement in global threat belief.

Our previous interest rate cuts continue to make corporate borrowing less costly. The typical rates of interest on brand-new loans to companies decreased to 3.8 percent in April, from 3.9 percent in March. The expense of releasing market-based financial obligation was the same at 3.7 percent. Bank lending to companies continued to strengthen slowly, growing by a yearly rate of 2.6 percent in April after 2.4 per cent in March, while business bond issuance was suppressed. The typical rates of interest on new mortgages stayed at 3. 3 percent in April, while growth in mortgage lending increased to 1.9 per cent.

In line with our financial policy strategy, the Governing Council completely examined the links in between monetary policy and monetary stability. While euro area banks stay resilient, broader financial stability threats stay raised, in specific owing to extremely unsure and volatile international trade policies. Macroprudential policy stays the first line of defence against the build-up of financial vulnerabilities, enhancing strength and maintaining macroprudential space.

The Governing Council today decided to reduce the three key ECB interest rates by 25 basis points. In particular, the choice to lower the deposit center rate - the rate through which we steer the monetary policy position - is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are identified to ensure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in current conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the suitable financial policy position. Our interest rate choices will be based upon our assessment of the inflation outlook in light of the incoming financial and monetary information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

In any case, we stand ready to change 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)