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 statement on ECB site: 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 lower the three essential ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit facility rate - the rate through which we guide the monetary policy position - is based on our upgraded evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
Inflation is presently at around our two per cent medium-term target. In the standard of the new Eurosystem personnel projections, headline inflation is set to typical 2.0 percent in 2025, 1.6 percent in 2026 and 2.0 per cent 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 costs and a stronger euro. Staff anticipate inflation omitting energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged since March.
Staff see genuine GDP growth balancing 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised development projection for 2025 reflects a stronger than anticipated first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is anticipated to weigh on organization investment and exports, particularly in the short-term, increasing federal government financial investment in defence and infrastructure will significantly support development over the medium term. Higher real earnings and a robust labour market will allow families to invest more. Together with more beneficial funding conditions, this should make the economy more durable to worldwide shocks.
In the context of high unpredictability, personnel likewise evaluated a few of the systems by which various trade policies could affect growth and inflation under some alternative illustrative circumstances. These circumstances will be published with the personnel forecasts on our website. Under this situation analysis, a more escalation of trade tensions over the coming months would lead to development and inflation being below the baseline forecasts. By contrast, if trade stress were resolved with a benign result, growth and, to a lesser level, 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 visibly, and profits are partially buffering its influence on inflation. The issues that increased unpredictability and an unstable market action to the trade stress in April would have a tightening up effect on financing conditions have actually eased.
We are determined to make sure that inflation stabilises sustainably at our two per cent medium-term target. Especially in present conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the appropriate financial policy stance. Our rate of interest choices will be based upon our assessment of the inflation outlook because of the inbound financial and monetary data, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate path.
The decisions taken today are set out in a press release available on our site.
I will now outline in more information how we see the economy and inflation establishing and will then discuss our evaluation of financial 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 lowest level since 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 personnel projections, study data point general to some weaker prospects in the near term. While production has reinforced, partially because trade has 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 companies to export. High uncertainty is anticipated to weigh on financial investment.
At the same time, a number of aspects are keeping the economy resistant and needs 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 rates of interest cuts, should all assist customers and firms withstand the fallout from an unstable global environment. Recently announced steps to step up defence and infrastructure investment ought to also boost growth.
In the present geopolitical environment, it is even more immediate for fiscal and structural policies to make the euro area economy more efficient, competitive and resistant. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its proposals, consisting of on simplification, ought to be swiftly embraced. This includes completing the savings and investment union, following a clear and enthusiastic schedule. It is likewise important to quickly develop the legislative framework to prepare the ground for the possible introduction of a digital euro. Governments must make sure sustainable public finances in line with the EU ´ s economic governance structure, while prioritising essential 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 price inflation remained at -3.6 percent. Food cost inflation rose to 3.3 per cent, from 3.0 percent the month previously. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 percent in April. Services inflation had actually jumped in April generally due to the fact that costs for travel services around the Easter holidays went up by more than expected.
Most indications of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour expenses are slowly moderating, as shown by inbound information on and readily available country information on compensation per employee. The ECB ´ s wage tracker indicate an additional easing of negotiated wage growth in 2025, while the staff projections see wage growth falling to listed below 3 percent in 2026 and 2027. While lower energy prices and a more powerful euro are putting downward 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, most likely showing news about trade tensions. But a lot of procedures 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 financial development remain tilted to the drawback. An additional escalation in global trade tensions and associated unpredictabilities could decrease euro location growth by dampening exports and dragging down financial investment and usage. A wear and tear in monetary market sentiment might lead to tighter financing conditions and higher danger hostility, and make companies and homes less going to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, remain a significant source of uncertainty. By contrast, if trade and geopolitical stress were resolved quickly, this might lift belief and spur activity. A more boost 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 normal, as a result of the volatile global trade policy environment. Falling energy costs and a more powerful 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 might cause higher volatility and danger hostility in financial markets, which would weigh on domestic need and would thereby likewise lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by rising import costs and contributing to capacity restrictions in the domestic economy. An increase in defence and infrastructure costs might also raise inflation over the medium term. Extreme weather condition events, and the unfolding environment crisis more broadly, could drive up food prices 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 narrowed, in response to more favorable news about international trade policies and the enhancement in international danger sentiment.
Our previous rate of interest cuts continue to make business borrowing less costly. The typical interest rate on new loans to firms declined to 3.8 percent in April, from 3.9 per cent in March. The cost of issuing market-based debt was unchanged 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 percent in March, while corporate bond issuance was controlled. The typical rate of interest on brand-new mortgages remained at 3. 3 percent in April, while growth in mortgage financing increased to 1.9 per cent.
In line with our monetary policy method, the Governing Council thoroughly assessed the links between monetary policy and financial stability. While euro location banks stay resilient, wider financial stability threats stay elevated, in specific owing to highly unsure and volatile global trade policies. Macroprudential policy remains the first line of defence against the build-up of financial vulnerabilities, improving durability and maintaining macroprudential area.
The Governing Council today decided to lower the three crucial ECB rates of interest by 25 basis points. In particular, the choice to lower the deposit facility rate - the rate through which we guide the financial policy stance - is based on our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission. We are figured out to guarantee that inflation stabilises sustainably at our two per cent medium-term target. Especially in existing conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our rates of interest choices will be based upon our evaluation of the inflation outlook due to the incoming financial and monetary information, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate path.
In any case, we stand ready to change all of our instruments within our required to ensure that inflation stabilises sustainably at our medium-term target and to maintain the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)
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