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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 conference 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 welcome you to our press conference.

The Governing Council today decided to reduce the three key ECB interest rates by 25 basis points. In particular, the choice to decrease the deposit center rate - the rate through which we guide the monetary policy stance - is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

Inflation is presently at around our two per cent medium-term target. In the standard of the new Eurosystem personnel projections, headline inflation is set to typical 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The down revisions compared to the March forecasts, by 0.3 percentage points for both 2025 and 2026, primarily show lower presumptions for energy rates and a more powerful euro. Staff anticipate inflation excluding energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged since March.

Staff see genuine GDP development averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 per cent in 2027. The unrevised development forecast for 2025 shows a stronger than expected first quarter integrated with weaker prospects for the rest of the year. While the uncertainty surrounding trade policies is anticipated to weigh on company investment and exports, specifically in the short-term, rising government financial investment in defence and infrastructure will significantly support development over the medium term. Higher real incomes and a robust labour market will permit families to invest more. Together with more beneficial financing conditions, this ought to make the economy more durable to worldwide shocks.

In the context of high uncertainty, staff likewise examined a few of the mechanisms by which different trade policies could impact growth and inflation under some alternative illustrative circumstances. These situations will be released with the staff forecasts on our website. Under this situation analysis, an additional 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 outcome, growth and, to a lesser level, inflation would be higher than in the baseline forecasts.

Most measures of underlying inflation recommend that inflation will settle at around our 2 per cent medium-term target on a continual basis. Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its impact on inflation. The issues that increased uncertainty and an unstable market reaction to the trade stress in April would have a tightening up effect on financing conditions have eased.

We are determined to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the suitable financial policy position. Our interest rate choices will be based on our assessment of the inflation outlook because 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 specific rate course.

The choices taken today are set out in a news release readily 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 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 estimate. Unemployment, at 6.2 per cent in April, is at its most affordable level given that 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 staff forecasts, survey data point total to some weaker potential customers in the near term. While production has strengthened, partly due to the fact that trade has been brought forward 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 firms to export. High unpredictability is expected to weigh on investment.

At the very same time, several aspects are keeping the economy resilient and ought to support development over the medium term. A strong labour market, increasing genuine earnings, robust economic sector balance sheets and simpler financing conditions, in part due to the fact that of our previous rate of interest cuts, should all assist customers and companies endure the fallout from an unstable global environment. Recently announced steps to step up defence and facilities investment ought to likewise boost development.

In the present geopolitical environment, it is a lot more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its proposals, including on simplification, ought to be quickly adopted. This consists of finishing the savings and investment union, following a clear and ambitious timetable. It is also important to rapidly develop the legal framework to prepare the ground for the potential intro of a digital euro. Governments ought to guarantee sustainable public finances in line with the EU ´ s economic governance structure, while prioritising essential growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation declined to 1.9 per cent 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 price inflation increased to 3.3 percent, from 3.0 percent the month before. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 percent, from 4.0 percent in April. Services inflation had jumped in April generally due to the fact that costs for travel services around the Easter vacations went up by more than anticipated.

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are gradually moderating, as indicated by inbound data on worked out incomes and offered country data on compensation per worker. The ECB ´ s wage tracker indicate an additional easing of negotiated wage development in 2025, while the personnel forecasts see wage growth falling to listed below 3 percent in 2026 and 2027. While lower energy rates and a more powerful euro are putting downward pressure on inflation in the near term, inflation is expected to go back to target in 2027.

Short-term consumer inflation expectations edged up in April, likely showing news about trade tensions. But the majority of steps 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 economic development remain tilted to the drawback. An additional escalation in worldwide trade stress and associated uncertainties might lower euro location development by moistening exports and dragging down investment and usage. A deterioration in financial market sentiment could cause tighter financing conditions and higher danger hostility, and make companies and households less happy to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the tragic dispute in the Middle East, stay a significant source of unpredictability. By contrast, if trade and geopolitical tensions were resolved quickly, this might raise belief and spur activity. An additional boost in defence and infrastructure costs, together with productivity-enhancing reforms, would likewise add to development.

The outlook for euro area inflation is more uncertain than normal, as an outcome of the unpredictable global trade policy environment. Falling energy costs and a stronger euro might put additional downward pressure on inflation. This could be strengthened if higher tariffs led to lower need for euro area exports and to nations with overcapacity rerouting their exports to the euro area. Trade stress could cause greater volatility and threat aversion in financial markets, which would weigh on domestic need and would therefore likewise lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by pushing up import costs and including to capability restraints in the domestic economy. A boost in defence and facilities spending might likewise raise inflation over the medium term. Extreme weather condition events, and the unfolding climate crisis more broadly, might increase food rates by more than anticipated.

Financial and monetary conditions

Risk-free interest rates have remained broadly the same given that our last meeting. Equity rates have increased, and business bond spreads have actually narrowed, in action to more favorable news about worldwide trade policies and the improvement in global danger sentiment.

Our previous interest rate cuts continue to make business borrowing less costly. The average interest rate on brand-new loans to companies decreased to 3.8 per cent in April, from 3.9 percent in March. The cost of providing market-based financial obligation was the same at 3.7 per cent. Bank providing to companies continued to reinforce gradually, growing by an annual rate of 2.6 per cent in April after 2.4 percent in March, while corporate bond issuance was suppressed. The average interest rate on new mortgages remained at 3. 3 per cent in April, while development in mortgage financing increased to 1.9 per cent.

In line with our financial policy strategy, the Governing Council completely evaluated the links between financial policy and monetary stability. While euro area banks remain resistant, broader monetary stability dangers stay raised, in specific owing to extremely uncertain and volatile global trade policies. Macroprudential policy remains the first line of defence versus the accumulation of financial vulnerabilities, boosting resilience and maintaining macroprudential space.

The Governing Council today decided to decrease the 3 key ECB rate of interest by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we steer the monetary policy stance - is based upon our upgraded evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are determined to guarantee that inflation stabilises sustainably at our 2 percent medium-term target. Especially in current conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting technique to figuring out the proper financial policy stance. Our rate of interest choices will be based upon our evaluation of the inflation outlook because of the incoming economic and financial information, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.

In any case, we stand ready to change all of our within our mandate to make sure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of financial policy transmission. (Compiled by Toby Chopra)