June 5 (Reuters) - Following is the text of European Central 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 interview.

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

Inflation is currently at around our two percent medium-term target. In the baseline of the new Eurosystem personnel forecasts, heading inflation is set to typical 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 percent in 2027. The downward revisions compared to the March projections, by 0.3 portion points for both 2025 and 2026, primarily reflect lower presumptions 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 given that March.

Staff see genuine GDP development balancing 0.9 percent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth projection for 2025 shows a more powerful than anticipated very first quarter combined with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on business investment and exports, specifically in the short-term, increasing government financial investment in defence and infrastructure will increasingly support development over the medium term. Higher genuine earnings and a robust labour market will allow households to invest more. Together with more beneficial funding conditions, this must make the economy more resilient to global shocks.

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

Most measures of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a continual basis. Wage development is still raised however continues to moderate visibly, and earnings are partly buffering its influence on inflation. The concerns that increased uncertainty and a volatile market action to the trade stress in April would have a tightening influence on funding conditions have actually reduced.

We are figured out to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting technique to figuring out the appropriate monetary policy stance. Our interest rate decisions will be based upon our evaluation of the inflation outlook due to the incoming financial and monetary data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

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

I will now lay out in more detail how we see the economy and inflation developing and will then describe our assessment of financial and monetary 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 considering that the launch of the euro, and work grew by 0.3 per cent in the very first quarter of the year, according to the flash quote.

In line with the personnel projections, study data point general to some weaker potential customers in the near term. While production has reinforced, partly because trade has been advanced in anticipation of greater tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a more powerful euro are expected to make it harder for companies to export. High uncertainty is anticipated to weigh on investment.

At the very same time, numerous aspects are keeping the economy resistant and needs to support growth over the medium term. A strong labour market, increasing real incomes, robust private sector balance sheets and easier financing conditions, in part because of our past rate of interest cuts, ought to all assist customers and firms hold up against the fallout from an unpredictable worldwide environment. Recently announced procedures to step up defence and facilities financial investment need to likewise boost growth.

In the present geopolitical environment, it is even more immediate for fiscal and structural policies to make the euro location economy more productive, 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 consists of finishing the cost savings and investment union, following a clear and ambitious timetable. It is likewise important to quickly develop the legal framework to prepare the ground for the prospective introduction of a digital euro. Governments should make sure sustainable public finances in line with the EU ´ s financial governance framework, while prioritising necessary growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation declined to 1.9 per cent in May, from 2.2 per cent in April, according to Eurostat ´ s flash price quote. Energy rate inflation stayed at -3.6 per cent. Food price inflation rose to 3.3 per cent, 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 per cent, from 4.0 percent in April. Services inflation had jumped in April mainly since costs for travel services around the Easter holidays went up by more than expected.

Most indicators of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour expenses are slowly moderating, as shown by inbound information on negotiated salaries and readily available country data on settlement per employee. The ECB ´ s wage tracker indicate a further easing of worked out wage development in 2025, while the staff forecasts see wage development falling to below 3 percent in 2026 and 2027. While lower energy rates 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 customer inflation expectations edged up in April, most likely reflecting news about trade stress. But the majority of measures 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 economic growth stay slanted to the disadvantage. An additional escalation in global trade stress and associated uncertainties could decrease euro location growth by dampening exports and dragging down investment and intake. A degeneration in monetary market sentiment might result in 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 versus Ukraine and the terrible dispute in the Middle East, remain a significant source of unpredictability. By contrast, if trade and geopolitical tensions were solved 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 growth.

The outlook for euro location inflation is more uncertain than typical, as an outcome of the unpredictable worldwide trade policy environment. Falling energy costs and a stronger euro could put further down pressure on inflation. This might be enhanced if greater tariffs resulted in lower need for euro location exports and to countries with overcapacity rerouting their exports to the euro area. Trade stress could lead to greater volatility and risk aversion in monetary markets, which would weigh on domestic need and would thereby also lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by rising import costs and adding to capacity restraints in the domestic economy. An increase in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather condition events, and the unfolding climate crisis more broadly, might increase food costs by more than anticipated.

Financial and monetary conditions

Risk-free rates of interest have stayed broadly the same considering that our last conference. Equity costs have risen, and corporate bond spreads have actually narrowed, in reaction to more favorable news about international trade policies and the enhancement in worldwide danger sentiment.

Our past rate of interest cuts continue to make corporate borrowing less pricey. The average rates of interest on 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 percent. Bank providing to companies continued to strengthen gradually, growing by a yearly rate of 2.6 per cent in April after 2.4 percent in March, while business bond issuance was controlled. 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 thoroughly examined the links between monetary policy and monetary stability. While euro area banks remain resilient, wider monetary stability risks remain elevated, in specific owing to extremely unpredictable and unstable international trade policies. Macroprudential policy stays the first line of defence against the accumulation of financial vulnerabilities, improving durability and protecting macroprudential area.

The Governing Council today decided to reduce the 3 crucial ECB rates of interest by 25 basis points. In specific, the choice to reduce the deposit facility rate - the rate through which we steer the monetary policy stance - is based on our updated evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to identifying the proper monetary policy position. Our rates of interest choices will be based upon our evaluation of the inflation outlook because of 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.

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