June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's declaration after the bank's policy meeting 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 lower the three crucial ECB interest rates by 25 basis points. In specific, the decision to lower the deposit center rate - the rate through which we steer the monetary policy position - is based upon our upgraded evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.

Inflation is currently at around our 2 per cent medium-term target. In the standard 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 downward revisions compared to the March projections, by 0.3 percentage points for both 2025 and 2026, primarily show lower presumptions for energy prices and a more powerful euro. Staff expect inflation excluding energy and food to average 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged because March.

Staff see real GDP development balancing 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development projection for 2025 shows a more powerful than anticipated first quarter combined with weaker potential customers for the remainder of the year. While the unpredictability surrounding trade policies is anticipated to weigh on service investment and exports, particularly in the short-term, rising federal government investment in defence and infrastructure will significantly support development over the medium term. Higher genuine earnings and a robust labour market will allow homes to spend more. Together with more beneficial financing conditions, this ought to make the economy more resilient to international shocks.

In the context of high uncertainty, staff likewise evaluated a few of the mechanisms by which different trade policies might affect development and inflation under some alternative illustrative circumstances. These situations will be published with the personnel forecasts on our website. Under this circumstance analysis, an additional escalation of trade stress over the coming months would result in development and inflation being listed below the standard projections. By contrast, if trade tensions were resolved with a benign outcome, growth and, to a lesser degree, inflation would be higher than in the standard forecasts.

Most measures of underlying inflation suggest that inflation will settle at around our 2 per cent medium-term target on a sustained basis. Wage development is still elevated but continues to moderate noticeably, and earnings are partly buffering its influence on inflation. The concerns that increased uncertainty and an unpredictable market reaction to the trade tensions in April would have a tightening influence on funding conditions have reduced.

We are determined to make sure that inflation stabilises sustainably at our two per cent medium-term target. Especially in present conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting method to figuring out the proper monetary policy position. Our rates of interest choices will be based on our assessment of the inflation outlook in light of the incoming economic and financial information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.

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

I will now lay out in more information how we see the economy and inflation establishing and will then describe our assessment of financial and financial conditions.

Economic activity

The economy grew by 0.3 percent in the very first quarter of 2025, according to Eurostat ´ s flash estimate. Unemployment, at 6.2 percent in April, is at its least expensive 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 personnel forecasts, survey data point general to some weaker potential customers in the near term. While production has actually strengthened, partially because trade has been brought forward in anticipation of greater tariffs, the more locally oriented services sector is slowing. Higher tariffs and a stronger euro are expected to make it harder for companies to export. High uncertainty is anticipated to weigh on financial investment.

At the same time, a number of factors are keeping the economy durable and needs to support development over the medium term. A strong labour market, rising real earnings, robust personal sector balance sheets and much easier financing conditions, in part since of our past rates of interest cuts, must all help customers and firms endure the fallout from an unpredictable worldwide environment. Recently revealed steps to step up defence and facilities investment ought to also reinforce development.

In today geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro area economy more efficient, competitive and resilient. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its propositions, including on simplification, should be swiftly adopted. This includes completing the cost savings and investment union, following a clear and ambitious timetable. It is likewise important to quickly establish the legislative structure to prepare the ground for the possible intro of a digital euro. Governments must make sure sustainable public finances in line with the EU ´ s financial governance framework, while prioritising vital growth-enhancing structural reforms and strategic financial investment.

Inflation

Annual inflation declined 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 increased to 3.3 percent, from 3.0 per cent the month previously. Goods inflation was the same at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 per cent in April. Services inflation had actually jumped in April primarily since costs for travel services around the Easter vacations went up by more than expected.
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Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour costs are slowly moderating, as suggested by incoming information on worked out earnings and available country information on compensation per staff member. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the staff 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 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, likely showing news about trade tensions. 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
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Risks to economic growth remain tilted to the downside. A further escalation in international trade stress and associated uncertainties might lower euro area development by dampening exports and dragging down financial investment and usage. A wear and tear in financial market belief could cause tighter funding and higher risk hostility, and confirm and homes less going to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the awful conflict in the Middle East, stay a major source of uncertainty. By contrast, if trade and geopolitical tensions were dealt with swiftly, this could lift belief and spur activity. A further increase in defence and facilities spending, together with productivity-enhancing reforms, would likewise include to development.

The outlook for euro area inflation is more unsure than normal, as a result of the unstable global trade policy environment. Falling energy costs and a stronger euro might put further down pressure on inflation. This might be reinforced if greater tariffs led to lower need for euro location exports and to countries with overcapacity rerouting their exports to the euro area. Trade tensions might result in greater volatility and risk aversion 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 pressing up import rates and contributing to capability constraints in the domestic economy. An increase in defence and infrastructure costs might also raise inflation over the medium term. Extreme weather occasions, and the unfolding climate crisis more broadly, could drive up food rates by more than expected.

Financial and monetary conditions

Risk-free interest rates have actually stayed broadly unchanged since our last conference. Equity prices have risen, and business bond spreads have actually narrowed, in reaction to more positive news about international trade policies and the improvement in worldwide threat sentiment.

Our past interest rate cuts continue to make corporate borrowing more economical. The average rates of interest on brand-new loans to firms declined to 3.8 per cent in April, from 3.9 percent in March. The cost of providing market-based debt was the same at 3.7 per cent. Bank lending to companies continued to reinforce gradually, growing by an annual rate of 2.6 per cent in April after 2.4 per cent in March, while corporate bond issuance was subdued. The typical interest rate on new mortgages remained at 3. 3 per cent in April, while development in mortgage lending increased to 1.9 per cent.

In line with our financial policy technique, the Governing Council completely assessed the links in between monetary policy and financial stability. While euro location banks stay durable, more comprehensive monetary stability dangers remain raised, in specific owing to highly uncertain and unpredictable international trade policies. Macroprudential policy remains the very first line of defence against the build-up of monetary vulnerabilities, boosting resilience and protecting macroprudential space.

The Governing Council today decided to reduce the 3 crucial ECB rate of interest by 25 basis points. In specific, the decision to decrease 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 characteristics of underlying inflation and the strength of financial policy transmission. We are figured out to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the proper monetary policy position. Our rates of interest choices will be based on our assessment of the inflation outlook in light of the incoming financial and monetary information, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate course.

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 preserve the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)