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

The Governing Council today decided to decrease the three crucial ECB rates of interest by 25 basis points. In specific, the decision to reduce the deposit facility rate - the rate through which we steer the financial policy position - is based upon our updated evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.

Inflation is presently at around our two per cent medium-term target. In the baseline of the brand-new Eurosystem staff projections, heading inflation is set to average 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The down modifications compared with the March projections, by 0.3 percentage points for both 2025 and 2026, generally reflect lower assumptions for energy prices and a more powerful euro. Staff expect inflation excluding energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same given that March.

Staff see genuine GDP growth averaging 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 percent in 2027. The unrevised development projection for 2025 reflects a stronger than anticipated first quarter integrated with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is expected to weigh on service investment and exports, especially in the short-term, rising federal government financial investment in defence and facilities will significantly support development over the medium term. Higher real earnings and a robust labour market will enable households to invest more. Together with more beneficial financing conditions, this must make the economy more resistant to international shocks.

In the context of high uncertainty, personnel also evaluated some of the mechanisms by which different trade policies could impact development and inflation under some alternative illustrative situations. These situations will be published with the staff forecasts on our site. Under this circumstance analysis, an additional escalation of trade stress over the coming months would lead to growth and inflation being listed below the baseline forecasts. By contrast, if trade stress were fixed with a benign outcome, development and, to a lesser level, inflation would be greater than in the baseline forecasts.

Most measures of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage development is still raised but continues to moderate noticeably, and earnings are partially 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 effect on funding conditions have relieved.

We are identified 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 method to identifying the appropriate monetary policy position. Our interest rate choices will be based on our evaluation of the inflation outlook because of the incoming financial and financial information, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular 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 developing and will then explain our evaluation of monetary and financial 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 percent in April, is at its lowest level given that the launch of the euro, and employment grew by 0.3 percent in the very first quarter of the year, according to the flash price quote.

In line with the personnel projections, survey information point total to some weaker prospects in the near term. While production has actually reinforced, partially since trade has been brought forward in anticipation of higher tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a more powerful euro are anticipated to make it harder for companies to export. High unpredictability is anticipated to weigh on investment.

At the exact same time, numerous factors are keeping the economy resistant and needs to support development over the medium term. A strong labour market, increasing genuine earnings, robust personal sector balance sheets and simpler financing conditions, in part since of our past rates of interest cuts, ought to all help consumers and firms hold up against the fallout from an unstable global environment. Recently announced steps to step up defence and infrastructure investment must also reinforce development.

In today geopolitical environment, it is even more immediate for fiscal and structural policies to make the euro location economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its proposals, consisting of on simplification, should be swiftly embraced. This consists of finishing the cost savings and financial investment union, following a clear and enthusiastic timetable. It is also essential to rapidly develop the legislative framework to prepare the ground for the prospective intro of a digital euro. Governments ought to ensure sustainable public financial resources in line with the EU ´ s economic governance structure, while prioritising necessary growth-enhancing structural reforms and tactical investment.

Inflation

Annual inflation decreased to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash quote. Energy rate inflation remained at -3.6 per cent. Food rate inflation rose to 3.3 percent, from 3.0 percent the month before. Goods inflation was the same at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had leapt in April mainly because prices for travel services around the Easter vacations went up by more than expected.

Most indications of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour expenses are gradually moderating, as suggested by inbound information on worked out salaries and offered nation data on settlement per employee. The ECB ´ s wage tracker points to an additional easing of worked out wage growth in 2025, while the staff 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 expected to go back to target in 2027.

Short-term customer inflation expectations edged up in April, likely showing news about trade stress. But most 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 development stay tilted to the drawback. An additional escalation in worldwide trade tensions and associated uncertainties might reduce euro area development by moistening exports and dragging down financial investment and intake. A deterioration in monetary market sentiment might result in tighter funding conditions and higher threat hostility, and confirm and homes less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the awful dispute in the Middle East, stay a significant source of uncertainty. By contrast, if trade and geopolitical tensions were resolved promptly, this could lift sentiment and spur activity. An additional increase in defence and infrastructure costs, together with productivity-enhancing reforms, would also contribute to development.

The outlook for euro location inflation is more unsure than typical, as a result of the unpredictable international trade policy environment. Falling energy rates and a more powerful euro might put more downward pressure on inflation. This could be reinforced 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 cause higher volatility and threat hostility in financial markets, which would weigh on domestic demand and would consequently likewise lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by rising import costs and including to capacity constraints in the domestic economy. An increase in defence and infrastructure spending might likewise raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, might drive up food prices by more than expected.

Financial and financial conditions

Risk-free interest rates have stayed broadly the same because our last meeting. Equity prices have risen, and corporate bond spreads have narrowed, in response to more favorable news about global trade policies and the enhancement in global risk belief.

Our past rate of interest cuts continue to make corporate borrowing more economical. The average rate of interest on brand-new loans to companies declined to 3.8 per cent in April, from 3.9 per cent in March. The expense of issuing market-based debt was the same at 3.7 percent. Bank lending to firms continued to enhance 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 brand-new mortgages stayed at 3. 3 percent in April, while growth in mortgage financing increased to 1.9 per cent.

In line with our monetary policy method, the Governing Council thoroughly evaluated the links in between monetary policy and monetary stability. While euro location banks stay resistant, wider monetary stability dangers stay raised, in specific owing to extremely unpredictable and unpredictable global trade policies. Macroprudential policy stays the first line of defence against the accumulation of monetary vulnerabilities, improving resilience and protecting macroprudential space.

The Governing Council today chose to reduce the three crucial ECB rates of interest by 25 basis points. In specific, the decision to decrease the deposit facility rate - the rate through which we guide the monetary policy position - is based upon our updated 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 per cent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the proper monetary policy stance. Our interest rate will be based on our assessment of the inflation outlook due to the incoming financial and financial information, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.

In any case, we stand prepared 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)