June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's declaration after the bank's policy meeting on Thursday:

Link to statement 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 invite you to our press conference.

The Governing Council today decided to decrease the 3 key ECB rates of interest by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we guide the monetary policy stance - is based upon our upgraded evaluation 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 standard of the new forecasts, heading inflation is set to typical 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 projections, by 0.3 percentage points for both 2025 and 2026, primarily reflect lower assumptions for energy costs and a more powerful 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 unchanged considering that March.

Staff see real GDP development averaging 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development forecast for 2025 reflects a more powerful than expected very first quarter combined with weaker potential customers for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on organization investment and exports, especially in the short term, rising government financial investment in defence and facilities will progressively support growth over the medium term. Higher real incomes and a robust labour market will allow homes to invest more. Together with more beneficial funding conditions, this need to make the economy more durable to worldwide shocks.

In the context of high unpredictability, personnel also assessed some of the systems by which various trade policies might impact development and inflation under some alternative illustrative situations. These scenarios will be published with the personnel forecasts on our website. Under this circumstance analysis, a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections. By contrast, if trade stress were resolved with a benign result, growth and, to a lesser level, inflation would be higher than in the baseline projections.

Most procedures of underlying inflation suggest that inflation will settle at around our two percent medium-term target on a continual basis. Wage growth is still raised however continues to moderate visibly, and revenues are partly buffering its effect on inflation. The concerns that increased unpredictability and an unpredictable market action to the trade stress in April would have a tightening up influence on financing conditions have alleviated.

We are determined to guarantee that inflation stabilises sustainably at our two 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 suitable financial policy stance. Our interest rate choices will be based upon our evaluation of the inflation outlook due to the incoming 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 path.

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

I will now lay out in more detail how we see the economy and inflation developing and will then describe our evaluation of monetary and monetary conditions.

Economic activity

The economy grew by 0.3 percent 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 considering that the launch of the euro, and employment grew by 0.3 per cent in the very first quarter of the year, according to the flash estimate.

In line with the personnel forecasts, survey information point general to some weaker potential customers in the near term. While manufacturing has actually strengthened, partially since 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 companies to export. High unpredictability is anticipated to weigh on investment.

At the same time, several factors are keeping the economy durable and should support development over the medium term. A strong labour market, increasing real earnings, robust personal sector balance sheets and much easier funding conditions, in part because of our previous rate of interest cuts, must all help consumers and firms hold up against the fallout from a volatile worldwide environment. Recently revealed procedures to step up defence and infrastructure investment should likewise bolster growth.

In today geopolitical environment, it is even more immediate for financial and structural policies to make the euro location economy more efficient, competitive and resistant. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, consisting of on simplification, ought to be quickly embraced. This includes finishing the savings and financial investment union, following a clear and enthusiastic schedule. It is likewise crucial to rapidly develop the legal structure to prepare the ground for the potential introduction of a digital euro. Governments must make sure sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising vital growth-enhancing structural reforms and tactical financial investment.

Inflation

Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash price quote. Energy cost inflation remained at -3.6 per cent. Food cost inflation increased to 3.3 per cent, from 3.0 per cent the month in the past. 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 jumped in April mainly because prices 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 2 percent medium-term target. Labour expenses are slowly moderating, as shown by incoming data on worked out salaries and offered country data on settlement per worker. The ECB ´ s wage tracker indicate a more easing of worked out wage growth in 2025, while the staff projections see wage development being up to listed below 3 percent in 2026 and 2027. While lower energy prices and a more powerful euro are putting down pressure on inflation in the near term, inflation is anticipated to return to target in 2027.

Short-term consumer inflation expectations edged up in April, likely showing news about trade stress. But many procedures of longer-term inflation expectations continue to stand at around 2 per cent, which supports the stabilisation of inflation around our target.

Risk assessment

Risks to financial growth stay tilted to the drawback. A more escalation in global trade stress and associated uncertainties could lower euro location growth by dampening exports and dragging down investment and consumption. A deterioration in financial market sentiment might result in tighter funding conditions and greater threat hostility, and confirm and homes less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the tragic conflict in the Middle East, stay a significant source of uncertainty. By contrast, if trade and geopolitical tensions were solved swiftly, this might raise belief and spur activity. A further boost in defence and infrastructure costs, together with productivity-enhancing reforms, would also contribute to development.
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The outlook for euro area inflation is more unsure than usual, as a result of the volatile worldwide trade policy environment. Falling energy prices and a stronger euro might put more downward pressure on inflation. This could be enhanced if higher tariffs resulted in lower need for euro location exports and to countries with overcapacity rerouting their exports to the euro area. Trade stress could cause higher volatility and danger hostility in financial markets, which would weigh on domestic demand and would thereby also lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by rising import rates and including to capability restrictions in the domestic economy. An increase in defence and infrastructure costs could likewise raise inflation over the medium term. Extreme weather occasions, and the unfolding environment crisis more broadly, could drive up food costs by more than expected.

Financial and monetary conditions

Risk-free interest rates have stayed broadly the same considering that our last conference. Equity rates have actually increased, and corporate bond spreads have actually narrowed, in response to more positive news about global trade policies and the improvement in international threat belief.

Our past rate of interest cuts continue to make business borrowing more economical. The average interest rate on brand-new loans to firms declined to 3.8 per cent in April, from 3.9 percent in March. The expense of issuing market-based debt was unchanged at 3.7 percent. Bank providing to firms continued to strengthen slowly, growing by a yearly rate of 2.6 per cent in April after 2.4 per cent in March, while corporate bond issuance was controlled. The average interest rate on new mortgages stayed at 3. 3 percent in April, while development in mortgage financing increased to 1.9 per cent.

In line with our financial policy technique, the Governing Council completely examined the links in between monetary policy and financial stability. While euro location banks remain resilient, wider financial stability risks remain raised, in particular owing to highly unsure and unpredictable global trade policies. Macroprudential policy remains the very first line of defence versus the accumulation of financial vulnerabilities, boosting resilience and protecting macroprudential space.

The Governing Council today chose to decrease the three crucial ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit center rate - the rate through which we steer the monetary policy position - is based on our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are figured out to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting technique to identifying the proper monetary policy position. Our rate of interest decisions will be based upon our evaluation of the inflation outlook because of the incoming economic and monetary 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 ready to change all of our instruments within our mandate to guarantee that inflation stabilises sustainably at our medium-term target and to maintain the smooth performance of financial policy transmission. (Compiled by Toby Chopra)