June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's statement 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 welcome you to our interview.
The Governing Council today decided to reduce the 3 crucial ECB rate of interest by 25 basis points. In specific, the choice to lower the deposit facility rate - the rate through which we guide the monetary policy stance - is based on our upgraded evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.
Inflation is presently at around our two per cent medium-term target. In the baseline of the brand-new Eurosystem staff forecasts, heading inflation is set to average 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The downward modifications compared with the March projections, by 0.3 percentage points for both 2025 and 2026, primarily show lower presumptions for energy prices and a stronger euro. Staff expect inflation excluding energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly the same since March.
Staff see real GDP growth balancing 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised development projection for 2025 reflects a stronger than expected first quarter combined with weaker prospects for the rest of the year. While the uncertainty surrounding trade policies is anticipated to weigh on business financial investment and exports, specifically in the brief term, increasing government financial investment in defence and facilities will increasingly support growth over the medium term. Higher genuine incomes and a robust labour market will enable families to spend more. Together with more beneficial funding conditions, this should make the economy more resistant to worldwide shocks.
In the context of high unpredictability, staff likewise assessed a few of the mechanisms by which different trade policies might impact development and inflation under some alternative illustrative circumstances. These scenarios will be released with the personnel projections on our site. Under this situation analysis, an additional escalation of trade tensions over the coming months would lead to growth and inflation being listed below the baseline projections. By contrast, if trade stress were fixed with a benign result, growth and, to a lower degree, inflation would be greater than in the standard forecasts.
Most procedures of underlying inflation suggest that inflation will settle at around our 2 percent medium-term target on a sustained basis. Wage development is still raised but continues to moderate noticeably, and profits are partially buffering its effect on inflation. The issues that increased unpredictability and an unpredictable market action to the trade stress in April would have a tightening up effect on financing conditions have actually alleviated.
We are figured out to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the appropriate monetary policy position. Our interest rate decisions will be based upon our assessment of the inflation outlook due to the incoming economic and financial data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate path.
The decisions taken today are set out in a news release offered on our site.
I will now describe in more information how we see the economy and inflation developing and will then discuss our evaluation of financial and financial conditions.
Economic activity
The economy grew by 0.3 percent in the 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 work grew by 0.3 percent in the very first quarter of the year, according to the flash quote.
In line with the personnel projections, study data point overall to some weaker prospects in the near term. While manufacturing has enhanced, partly since trade has actually been advanced in anticipation of greater 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 expected to weigh on investment.
At the exact same time, numerous factors are keeping the economy resistant and ought to support growth over the medium term. A strong labour market, rising real incomes, robust economic sector balance sheets and simpler funding conditions, in part since of our past interest rate cuts, ought to all assist consumers and firms withstand the fallout from a volatile international environment. Recently revealed procedures to step up defence and infrastructure investment ought to also bolster growth.
In today geopolitical environment, it is much more urgent for financial and structural policies to make the euro area economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its propositions, including on simplification, must be swiftly embraced. This includes completing the savings and investment union, following a clear and enthusiastic timetable. It is also crucial to quickly develop the legislative framework to prepare the ground for the potential intro of a digital euro. Governments should ensure sustainable public finances in line with the EU ´ s financial governance structure, while prioritising vital growth-enhancing structural reforms and tactical financial investment.
Inflation
Annual inflation decreased to 1.9 percent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy cost inflation remained at -3.6 percent. Food cost inflation rose to 3.3 per cent, from 3.0 per cent the month previously. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had leapt in April primarily since costs for travel services around the Easter holidays increased by more than anticipated.
Most indications of underlying inflation recommend that inflation will stabilise sustainably at our two percent medium-term target. Labour costs are slowly moderating, as indicated by inbound data on negotiated incomes and available country data on compensation per staff member. The ECB ´ s wage tracker indicate an additional easing of worked out wage growth in 2025, while the personnel projections see wage development falling to below 3 percent in 2026 and 2027. While lower energy prices and a stronger euro are putting downward pressure on inflation in the near term, inflation is expected to go back to target in 2027.
Short-term consumer inflation expectations edged up in April, likely reflecting news about trade tensions. But many measures 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 economic development stay slanted to the downside. A more escalation in worldwide trade tensions and associated unpredictabilities could decrease euro area development by moistening exports and dragging down investment and intake. A wear and tear in financial market belief could cause tighter funding and higher threat aversion, and make companies and families less ready to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the awful dispute in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical stress were fixed swiftly, this might raise sentiment and spur activity. An additional increase in defence and facilities spending, together with productivity-enhancing reforms, would also contribute to development.
The outlook for euro area inflation is more unpredictable than usual, as an outcome of the volatile international trade policy environment. Falling energy costs and a stronger euro might put more downward pressure on inflation. This could be enhanced if higher tariffs resulted in lower need for euro area exports and to nations with overcapacity rerouting their exports to the euro location. Trade stress could cause higher volatility and threat hostility in monetary markets, which would weigh on domestic need and would thus also lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by rising import rates and including to capacity restrictions in the domestic economy. An increase in defence and facilities spending might also raise inflation over the medium term. Extreme weather condition occasions, and the unfolding environment crisis more broadly, might increase food costs by more than expected.
Financial and monetary conditions
Risk-free interest rates have actually remained broadly unchanged since our last meeting. Equity prices have actually increased, and corporate bond spreads have actually narrowed, in response to more favorable news about global trade policies and the enhancement in international risk sentiment.
Our previous rate of interest cuts continue to make business loaning less costly. The typical rates of interest on brand-new loans to companies decreased to 3.8 percent in April, from 3.9 percent in March. The expense of providing market-based debt was unchanged 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 business bond issuance was suppressed. The average rates of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage loaning increased to 1.9 percent.
In line with our financial policy technique, the Governing Council completely examined the links in between monetary policy and monetary stability. While euro location banks remain resistant, more comprehensive financial stability threats remain elevated, in specific owing to extremely unpredictable and unpredictable global trade policies. Macroprudential policy stays the first line of defence versus the build-up of financial vulnerabilities, boosting resilience and maintaining macroprudential area.
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 financial policy position - is based on our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to guarantee that inflation stabilises sustainably at our two per cent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting technique to determining the appropriate financial policy position. Our rates of interest decisions will be based on our evaluation of the inflation outlook because of the incoming economic and monetary data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.
In any case, we stand all set to change all of our instruments within our required to make sure that inflation stabilises sustainably at our medium-term target and to maintain the smooth functioning of financial policy transmission. (Compiled by Toby Chopra)