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June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's statement after the bank's policy meeting 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 decided to reduce the 3 essential ECB interest rates by 25 basis points. In specific, the choice to reduce the deposit center rate - the rate through which we steer 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.
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Inflation is currently at around our 2 per cent medium-term target. In the baseline of the brand-new Eurosystem personnel forecasts, headline inflation is set to typical 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The downward modifications compared with the March projections, by 0.3 portion points for both 2025 and 2026, mainly reflect lower presumptions for energy rates and a stronger euro. Staff anticipate inflation excluding energy and food to typical 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged considering that March.

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

In the context of high uncertainty, personnel also examined some of the systems by which various trade policies could affect development and inflation under some alternative illustrative situations. These circumstances will be released with the personnel forecasts on our site. Under this circumstance analysis, a further escalation of trade tensions over the coming months would result in growth and inflation being below the baseline projections. By contrast, if trade stress were fixed with a benign outcome, development 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 elevated however continues to moderate visibly, and earnings are partially buffering its effect on inflation. The concerns that increased uncertainty and a volatile market response to the trade tensions in April would have a tightening up influence on financing conditions have reduced.

We are figured out to guarantee that inflation stabilises sustainably at our 2 percent medium-term target. Especially in current conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting method to figuring out the suitable monetary policy stance. Our interest rate decisions will be based upon our assessment of the inflation outlook in light of the incoming economic and monetary data, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.

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

I will now detail 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 first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 percent in April, is at its lowest level considering that 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 staff forecasts, study information point overall to some weaker prospects in the near term. While manufacturing has reinforced, partly due to the fact that trade has actually been advanced in anticipation of higher tariffs, the more locally oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for firms to export. High uncertainty is anticipated to weigh on investment.

At the same time, several factors are keeping the economy durable and should support development over the medium term. A strong labour market, rising real earnings, robust personal sector balance sheets and easier funding conditions, in part due to the fact that of our past interest rate cuts, need to all help customers and companies endure the fallout from an unpredictable global environment. Recently revealed steps to step up defence and facilities financial investment ought to likewise bolster development.

In the present geopolitical environment, it is a lot more urgent for financial and structural policies to make the euro location economy more efficient, competitive and resistant. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, including on simplification, ought to be promptly embraced. This consists of finishing the cost savings and investment union, following a clear and enthusiastic timetable. It is likewise essential to quickly establish the legal framework to prepare the ground for the potential introduction of a digital euro. Governments need to make sure sustainable public finances in line with the EU ´ s economic governance structure, while prioritising important growth-enhancing structural reforms and strategic investment.

Inflation

Annual inflation declined to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy cost inflation stayed at -3.6 percent. Food cost 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 actually jumped in April primarily because rates for travel services around the Easter vacations went up by more than expected.

Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour expenses are slowly moderating, as indicated by inbound information on negotiated salaries and readily available country data on payment per staff member. The ECB ´ s wage tracker indicate a further easing of negotiated wage growth in 2025, while the personnel projections 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 expected to return to target in 2027.

Short-term consumer inflation expectations edged up in April, most likely showing news about trade tensions. But many procedures of longer-term inflation expectations continue to stand at around 2 per cent, which supports the stabilisation of around our target.

Risk assessment
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Risks to economic development remain tilted to the drawback. An additional escalation in international trade stress and associated unpredictabilities might lower euro area growth by moistening exports and dragging down investment and usage. A deterioration in financial market sentiment might cause tighter financing conditions and higher threat aversion, and confirm and families less going to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the tragic dispute in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical tensions were resolved quickly, this might raise sentiment and spur activity. A further increase in defence and infrastructure costs, together with productivity-enhancing reforms, would also include to growth.

The outlook for euro area inflation is more unsure than usual, as an outcome of the volatile worldwide trade policy environment. Falling energy prices and a stronger euro could put more down pressure on inflation. This might be strengthened if higher tariffs led to lower demand for euro area exports and to nations with overcapacity rerouting their exports to the euro location. Trade tensions might result in greater volatility and risk aversion in monetary markets, which would weigh on domestic demand and would consequently also lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by pushing up import prices and contributing to capability restraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather condition occasions, and the unfolding climate crisis more broadly, might drive up food costs by more than expected.

Financial and financial conditions

Risk-free rate of interest have actually remained broadly the same considering that our last conference. Equity costs have risen, and corporate bond spreads have actually narrowed, in action to more positive news about global trade policies and the enhancement in worldwide threat belief.

Our previous rate of interest cuts continue to make business borrowing less costly. The typical rates of interest on brand-new loans to companies decreased to 3.8 percent in April, from 3.9 per cent in March. The cost of releasing market-based debt was unchanged at 3.7 percent. Bank providing to companies continued to enhance slowly, growing by a yearly rate of 2.6 per cent in April after 2.4 percent in March, while business bond issuance was suppressed. The average interest rate on brand-new mortgages remained at 3. 3 per cent in April, while development in mortgage loaning increased to 1.9 percent.

In line with our monetary policy strategy, the Governing Council thoroughly assessed the links between financial policy and financial stability. While euro location banks remain resilient, wider monetary stability threats remain elevated, in specific owing to highly unsure and unpredictable worldwide trade policies. Macroprudential policy stays the very first line of defence against the accumulation of monetary vulnerabilities, improving durability and protecting macroprudential space.

The Governing Council today chose to reduce the three crucial ECB interest rates by 25 basis points. In particular, the decision to reduce the deposit facility rate - the rate through which we steer the monetary policy stance - is based on our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are figured out to guarantee that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in existing conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting technique to identifying the proper monetary policy position. Our interest rate decisions will be based on our evaluation of the inflation outlook in light of the incoming financial and financial data, the dynamics 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 adjust all of our instruments within our required to guarantee that inflation stabilises sustainably at our medium-term target and to maintain the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)