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 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 welcome you to our interview.

The Governing Council today chose to reduce the three crucial ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit facility rate - the rate through which we guide the financial 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 baseline of the new Eurosystem personnel 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 modifications compared to the March forecasts, by 0.3 portion points for both 2025 and 2026, generally reflect lower presumptions for energy rates and a stronger euro. Staff expect inflation leaving out energy and food to average 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged given that March.

Staff see real GDP growth balancing 0.9 per cent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 reflects a more powerful than anticipated first quarter integrated with weaker prospects for the remainder of the year. While the unpredictability surrounding trade policies is expected to weigh on organization investment and exports, especially in the short-term, increasing government investment in defence and infrastructure will increasingly support development over the medium term. Higher genuine incomes and a robust labour market will permit homes to invest more. Together with more beneficial funding conditions, this must make the economy more resistant to worldwide shocks.

In the context of high uncertainty, personnel likewise evaluated some of the mechanisms by which different trade policies might impact growth and inflation under some alternative illustrative situations. These circumstances will be published with the personnel projections on our website. Under this situation analysis, a more escalation of trade tensions over the coming months would result in growth and inflation being listed below the baseline forecasts. By contrast, if trade stress were fixed with a benign result, growth and, to a lower extent, inflation would be higher than in the baseline projections.

Most steps of underlying inflation recommend that inflation will settle at around our 2 per cent medium-term target on a continual basis. Wage growth is still raised but continues to moderate noticeably, and profits are partly buffering its effect on inflation. The issues that increased uncertainty and an unpredictable market response to the trade tensions in April would have a tightening impact on financing conditions have actually reduced.

We are figured out to ensure that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the suitable financial policy stance. Our rates of interest choices 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 monetary policy transmission. We are not pre-committing to a specific rate path.

The choices taken today are set out in a news release available on our site.

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 percent 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 since the launch of the euro, and employment grew by 0.3 percent in the first quarter of the year, according to the flash price quote.

In line with the personnel forecasts, survey data point total to some weaker prospects in the near term. While production has actually enhanced, partially due to the fact that trade has actually been brought forward in anticipation of greater tariffs, the more locally 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 expected to weigh on financial investment.

At the same time, numerous factors are keeping the economy resistant and should support development over the medium term. A strong labour market, increasing genuine earnings, robust economic sector balance sheets and simpler financing conditions, in part because of our previous rate of interest cuts, need to all assist consumers and firms withstand the fallout from an unstable global environment. Recently revealed measures to step up defence and facilities investment must likewise strengthen development.

In today geopolitical environment, it is a lot more immediate for financial and structural policies to make the euro location economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its propositions, including on simplification, should be promptly adopted. This includes finishing the cost savings and investment union, following a clear and enthusiastic timetable. It is likewise important to quickly develop the legislative structure to prepare the ground for the possible intro of a digital euro. Governments ought to make sure sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising important growth-enhancing structural reforms and tactical 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 percent. Food price inflation rose to 3.3 percent, from 3.0 per cent the month previously. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 per cent in April. Services inflation had jumped in April primarily due to the fact that prices for travel services around the Easter vacations went up by more than expected.

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour costs are gradually moderating, as suggested by inbound information on worked out earnings and offered nation information on compensation per worker. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the staff projections see wage development being up to listed below 3 per cent in 2026 and 2027. While lower energy costs 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 showing news about trade tensions. But most steps 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 development stay tilted to the downside. A further escalation in worldwide trade stress and associated uncertainties might reduce euro location development by moistening exports and dragging down financial investment and intake. A wear and tear in financial market belief might cause tighter funding conditions and higher danger aversion, and make companies and homes less ready to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical stress were resolved swiftly, this could raise sentiment and spur activity. An additional increase in defence and facilities spending, together with productivity-enhancing reforms, would also add to growth.

The outlook for euro location inflation is more uncertain than typical, as an outcome of the volatile worldwide trade policy environment. Falling energy prices and a more powerful euro might put more downward pressure on inflation. This could be enhanced if greater tariffs led to lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro area. Trade stress could cause higher volatility and risk aversion in financial markets, which would weigh on domestic demand and would consequently likewise lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by rising import costs and contributing to capability restrictions in the domestic economy. An increase in defence and facilities costs might also raise inflation over the medium term. Extreme weather condition occasions, and the unfolding environment crisis more broadly, might drive up food rates by more than anticipated.

Financial and financial conditions

Risk-free interest rates have remained broadly unchanged considering that our last conference. Equity prices have actually increased, and corporate bond spreads have actually narrowed, in response to more positive news about global trade policies and the improvement in international risk belief.

Our previous rate of interest cuts continue to make business loaning cheaper. The average rate of interest on new loans to firms decreased to 3.8 percent in April, from 3.9 percent in March. The cost of providing market-based debt was the same at 3.7 percent. Bank providing to firms continued to enhance slowly, growing by a yearly rate of 2.6 percent in April after 2.4 per cent in March, while corporate bond issuance was controlled. The average rates of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage financing increased to 1.9 percent.

In line with our monetary policy method, the Governing Council thoroughly examined the links in between financial policy and monetary stability. While euro location banks stay resilient, broader financial stability risks remain elevated, in particular owing to extremely unsure and unstable worldwide trade policies. Macroprudential policy remains the very first line of defence versus the accumulation of financial vulnerabilities, boosting resilience and preserving macroprudential area.

The Governing Council today chose to reduce the 3 crucial ECB rate of interest by 25 basis points. In particular, the choice to lower the deposit facility rate - the rate through which we guide the monetary policy position - is based on our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are determined to make sure 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 figuring out the proper financial policy position. Our rates of interest decisions will be based on our evaluation of the inflation outlook because of the incoming economic 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.

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