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 site: https://www.[ecb.europa](https://bizmaker.ae).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 interview.

The Governing Council today decided to reduce the three crucial ECB rate of interest by 25 basis points. In specific, the choice to reduce the deposit center rate - the rate through which we steer the monetary policy stance - is based upon our updated 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 brand-new Eurosystem personnel projections, heading inflation is set to average 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The down modifications compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower presumptions for energy rates and a stronger euro. Staff expect inflation omitting energy and food to average 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged considering that March.

Staff see genuine GDP growth averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth forecast for 2025 shows a more powerful than expected first quarter integrated with weaker potential customers for the rest of the year. While the uncertainty surrounding trade policies is anticipated to weigh on company financial investment and exports, particularly in the short-term, increasing government investment in defence and infrastructure will progressively support growth over the medium term. Higher real earnings and a robust labour market will enable families to spend more. Together with more favourable funding conditions, this ought to make the economy more resistant to international shocks.

In the context of high unpredictability, staff likewise examined a few of the systems by which various trade policies could impact growth and inflation under some alternative illustrative situations. These circumstances will be released with the personnel projections on our website. Under this scenario analysis, a further escalation of trade tensions over the coming months would result in growth and inflation being listed below the standard forecasts. By contrast, if trade tensions were fixed with a benign outcome, growth and, to a lesser extent, inflation would be greater than in the baseline forecasts.

Most procedures of underlying inflation recommend that inflation will settle at around our two percent medium-term target on a sustained basis. Wage growth is still raised but continues to moderate visibly, and earnings are partially buffering its effect on inflation. The concerns that increased unpredictability and an unpredictable market response to the trade tensions in April would have a tightening impact on funding conditions have alleviated.

We are identified to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting method to determining the appropriate monetary policy position. Our rate of interest decisions will be based upon our assessment of the inflation outlook due to the incoming financial and monetary information, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate course.

The decisions taken today are set out in a news release offered on our website.

I will now describe in more detail how we see the economy and inflation establishing and will then discuss our evaluation of financial and financial conditions.

Economic activity

The economy grew by 0.3 per cent in the first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 percent in April, is at its most affordable level because the launch of the euro, and work grew by 0.3 percent in the first quarter of the year, according to the flash quote.

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

At the very same time, numerous elements are keeping the economy resistant and must support development over the medium term. A strong labour market, rising real earnings, robust personal sector balance sheets and much easier funding conditions, in part since of our past rate of interest cuts, ought to all assist customers and companies endure the fallout from an unpredictable global environment. Recently revealed procedures to step up defence and infrastructure financial investment must likewise reinforce growth.

In the present geopolitical environment, it is a lot more immediate for financial and structural policies to make the euro location economy more efficient, competitive and durable. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its proposals, including on simplification, must be swiftly adopted. This consists of finishing the savings and financial investment union, following a clear and ambitious timetable. It is also essential to rapidly develop the legislative framework to prepare the ground for the potential intro of a digital euro. Governments need to ensure sustainable public financial resources in line with the EU ´ s financial governance framework, while prioritising important growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation decreased to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash price quote. Energy cost inflation stayed at -3.6 per cent. Food rate inflation rose to 3.3 per cent, from 3.0 per cent the month before. 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 leapt in April mainly because rates for travel services around the Easter vacations increased by more than anticipated.

Most signs of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour expenses are gradually moderating, as shown by incoming data on negotiated earnings and available nation information on payment per employee. The ECB ´ s wage tracker points to a further easing of worked out wage development in 2025, while the personnel projections see wage growth being up to listed below 3 percent 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 anticipated to go back to target in 2027.

Short-term consumer inflation expectations edged up in April, likely showing news about trade tensions. But most steps 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 stay tilted to the drawback. An additional escalation in international trade tensions and associated unpredictabilities might decrease euro area development by moistening exports and dragging down financial investment and usage. A wear and tear in financial market belief might lead to tighter funding conditions and greater threat aversion, and confirm and homes less going to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the awful dispute in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical stress were dealt with swiftly, this might lift belief and spur activity. A further boost in defence and infrastructure costs, together with productivity-enhancing reforms, would also contribute to growth.

The outlook for euro area inflation is more unsure than usual, as a result of the unstable worldwide trade policy environment. Falling energy rates and a stronger euro might put more downward pressure on inflation. This might be reinforced if higher tariffs resulted in lower need for euro area exports and to countries with overcapacity rerouting their exports to the euro area. Trade tensions could lead to greater volatility and danger aversion in financial markets, which would weigh on domestic need and would consequently likewise lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by rising import rates and contributing to capability restrictions in the domestic economy. An increase in defence and infrastructure costs could likewise raise inflation over the medium term. Extreme weather condition occasions, and the unfolding environment crisis more broadly, could increase food rates by more than expected.

Financial and monetary conditions

Risk-free interest rates have actually stayed broadly the same because our last conference. Equity prices have risen, and corporate bond spreads have narrowed, in response to more positive news about international trade policies and the improvement in international risk sentiment.

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

In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between monetary policy and monetary stability. While euro area banks stay resilient, broader monetary stability dangers stay elevated, in specific owing to extremely unpredictable and unstable worldwide trade policies. Macroprudential policy stays the very first line of defence versus the build-up of financial vulnerabilities, enhancing strength and preserving macroprudential space.

The Governing Council today decided to lower 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 steer the monetary policy stance - is based upon our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are identified to ensure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in current conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the suitable monetary policy stance. Our interest rate choices will be based upon our evaluation of the inflation outlook due to 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 particular rate course.

In any case, we stand prepared to change 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)