June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's declaration after the bank's policy conference 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 chose to decrease the three crucial ECB interest rates by 25 basis points. In specific, the choice to decrease the deposit facility rate - the rate through which we guide the financial policy position - is based upon our updated evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our 2 percent medium-term target. In the standard of the brand-new Eurosystem personnel projections, 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 downward modifications compared with the March projections, by 0.3 portion points for both 2025 and 2026, mainly show lower assumptions for energy rates and a more powerful euro. Staff anticipate inflation omitting energy and food to typical 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged since March.

Staff see genuine GDP development averaging 0.9 percent in 2025, 1.1 percent 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 company financial investment and exports, particularly in the short-term, rising federal government financial investment in defence and facilities will increasingly support growth over the medium term. Higher real earnings and a robust labour market will enable homes to invest more. Together with more favourable financing conditions, this must make the economy more resilient to international shocks.

In the context of high uncertainty, staff also assessed some of the systems by which various trade policies could impact growth and inflation under some alternative illustrative circumstances. These circumstances will be published with the staff projections on our site. Under this circumstance analysis, a further escalation of trade tensions over the coming months would lead to growth and inflation being listed below the standard forecasts. By contrast, if trade stress were solved with a benign outcome, development and, to a lesser extent, inflation would be higher than in the standard projections.

Most procedures of underlying inflation suggest that inflation will settle at around our 2 per cent medium-term target on a sustained basis. Wage growth is still raised but continues to moderate noticeably, and earnings are partly buffering its effect on inflation. The concerns that increased unpredictability and an unpredictable market reaction to the trade tensions in April would have a tightening up impact on financing conditions have actually eased.

We are determined to guarantee that inflation stabilises sustainably at our 2 percent medium-term target. Especially in existing conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting technique to determining the suitable monetary policy stance. Our rates of interest choices will be based on our evaluation of the inflation outlook in light of the inbound financial and monetary data, 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 press release offered on our site.

I will now describe in more information how we see the economy and inflation establishing and will then discuss our assessment of monetary 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 percent in April, is at its most affordable level because the launch of the euro, and employment grew by 0.3 per cent in the first quarter of the year, according to the flash quote.

In line with the staff projections, study data point total to some weaker prospects in the near term. While production has actually enhanced, partly because trade has actually been advanced 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 firms to export. High uncertainty is anticipated to weigh on financial investment.

At the very same time, numerous aspects are keeping the economy resilient and ought to support development over the medium term. A strong labour market, rising real incomes, robust private sector balance sheets and much easier financing conditions, in part since of our past interest rate cuts, ought to all assist consumers and firms hold up against the fallout from an unstable international environment. Recently announced steps to step up defence and infrastructure investment need to likewise reinforce development.

In the present geopolitical environment, it is a lot more immediate for financial and structural policies to make the euro location economy more productive, competitive and resistant. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its proposals, consisting of on simplification, need to be promptly adopted. This consists of completing the savings and financial investment union, following a clear and ambitious schedule. It is likewise essential to quickly develop the legislative structure to prepare the ground for the prospective introduction of a digital euro. Governments ought to make sure sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising important growth-enhancing structural reforms and tactical 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 quote. Energy rate inflation stayed at -3.6 percent. Food cost inflation increased to 3.3 per cent, from 3.0 percent 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 jumped in April generally because rates for travel services around the Easter vacations went up by more than expected.

Most signs of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour costs are gradually moderating, as shown by inbound information on negotiated salaries and available nation data on settlement per worker. The ECB ´ s wage tracker points to a further easing of negotiated wage development in 2025, while the staff forecasts see wage development being up to below 3 percent in 2026 and 2027. While lower energy rates and a stronger 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 reflecting news about trade tensions. But most measures of longer-term inflation expectations continue to stand at around 2 percent, which supports the stabilisation of inflation around our target.

Risk assessment

Risks to economic development stay tilted to the disadvantage. An additional escalation in global trade stress and associated uncertainties could decrease euro location development by moistening exports and dragging down investment and intake. A deterioration in monetary market belief might result in tighter financing conditions and greater threat aversion, and confirm and families less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the awful dispute in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical tensions were dealt with promptly, this might lift sentiment and spur activity. A further increase in defence and infrastructure costs, together with productivity-enhancing reforms, would also contribute to growth.

The outlook for euro area inflation is more uncertain than typical, as an outcome of the volatile worldwide trade policy environment. Falling energy prices and a stronger euro might put further down pressure on inflation. This might be enhanced if greater tariffs resulted in lower need for euro area exports and to nations with overcapacity rerouting their exports to the euro location. Trade tensions might lead to higher volatility and threat hostility in monetary markets, which would weigh on domestic demand and would therefore also lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by pushing up import costs and including to capacity constraints in the domestic economy. An increase in defence and infrastructure costs might likewise raise inflation over the medium term. Extreme weather occasions, and the unfolding climate crisis more broadly, could drive up food costs by more than anticipated.

Financial and monetary conditions

Risk-free rate of interest have actually remained broadly the same because our last meeting. Equity costs have actually risen, and business bond spreads have narrowed, in action to more positive news about worldwide trade policies and the improvement in global danger sentiment.

Our past rate of interest cuts continue to make corporate borrowing more economical. The typical rate of interest on new loans to firms declined to 3.8 per cent in April, from 3.9 per cent in March. The expense of providing market-based financial obligation was unchanged at 3.7 percent. Bank providing to firms continued to strengthen slowly, growing by an annual rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was subdued. The typical rates of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage financing increased to 1.9 per cent.

In line with our monetary policy technique, the Governing Council completely assessed the links in between monetary policy and monetary stability. While euro location banks remain resilient, wider financial stability dangers stay elevated, in specific owing to highly uncertain and volatile worldwide trade policies. Macroprudential policy stays the first line of defence versus the accumulation of financial vulnerabilities, improving resilience and protecting macroprudential space.

The Governing Council today decided to reduce the three key ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit center rate - the rate through which we steer the financial policy stance - is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting technique to identifying the suitable financial policy position. Our interest rate choices will be based upon our evaluation of the inflation outlook because of the incoming economic and monetary information, the characteristics 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 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 monetary policy transmission. (Compiled by Toby Chopra)