June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's declaration after the bank's 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 reduce the three essential ECB interest rates by 25 basis points. In particular, the choice to lower 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 financial policy transmission.
Inflation is currently at around our two percent medium-term target. In the baseline of the new Eurosystem personnel projections, 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 show lower presumptions for energy prices and a more powerful euro. Staff expect inflation omitting energy and food to average 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same considering that March.
Staff see real GDP growth averaging 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 anticipated first quarter integrated with weaker potential customers for the rest of the year. While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, particularly in the short-term, increasing government investment in defence and infrastructure will increasingly support growth over the medium term. Higher genuine earnings and a robust labour market will allow households to invest more. Together with more favourable funding conditions, this ought to make the economy more resilient to international shocks.
In the context of high uncertainty, personnel likewise assessed some of the systems by which various trade policies might impact development and inflation under some alternative illustrative situations. These scenarios will be published with the personnel forecasts on our site. Under this circumstance analysis, a more escalation of trade stress over the coming months would lead to growth and inflation being below the standard projections. By contrast, if trade stress were solved with a benign result, development and, to a lower degree, inflation would be higher than in the standard projections.
Most steps of underlying inflation suggest that inflation will settle at around our two per cent medium-term target on a continual basis. Wage growth is still elevated however continues to moderate visibly, and profits are partly buffering its effect on inflation. The concerns that increased uncertainty and a volatile market reaction to the trade tensions in April would have a tightening effect on funding conditions have alleviated.
We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting approach to identifying the appropriate financial policy stance. Our rate of interest decisions will be based on our assessment of the inflation outlook because of the inbound economic and monetary data, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.
The decisions taken today are set out in a press release readily available on our site.
I will now outline in more detail how we see the economy and inflation developing and will then discuss our evaluation of monetary 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 per cent in April, is at its lowest level given that 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, survey information point total to some weaker prospects in the near term. While manufacturing has actually reinforced, partially because trade has 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 companies to export. High uncertainty is anticipated to weigh on investment.
At the very same time, a number of elements are keeping the economy resilient and ought to support development over the medium term. A strong labour market, increasing real incomes, robust personal sector balance sheets and simpler financing conditions, in part due to the fact that of our previous rate of interest cuts, ought to all assist consumers and firms endure the fallout from an unpredictable worldwide environment. Recently revealed procedures to step up defence and facilities financial investment must likewise bolster development.
In the present geopolitical environment, it is much 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 propositions, including on simplification, must be swiftly embraced. This includes completing the savings and investment union, following a clear and ambitious timetable. It is also essential to quickly develop the legislative framework to prepare the ground for the prospective introduction of a digital euro. Governments ought to guarantee sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising essential growth-enhancing structural reforms and strategic investment.
Inflation
Annual inflation decreased to 1.9 percent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy rate inflation remained at -3.6 percent. Food cost inflation rose to 3.3 percent, from 3.0 per cent the month previously. Goods inflation was unchanged at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had jumped in April mainly since rates for travel services around the Easter holidays increased by more than expected.
Most signs of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour expenses are slowly moderating, as indicated by inbound data on negotiated incomes and offered country information on settlement per worker. The ECB ´ s wage tracker points to a further easing of negotiated wage development in 2025, while the staff forecasts see wage development being up to below 3 per cent in 2026 and 2027. While lower energy costs and a stronger euro are putting downward pressure on inflation in the near term, inflation is expected to return to target in 2027.
Short-term customer inflation expectations edged up in April, likely reflecting news about trade stress. But the majority 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 economic growth stay slanted to the downside. An additional escalation in global trade tensions and associated uncertainties might reduce euro area development by dampening exports and dragging down financial investment and intake. A degeneration in financial market sentiment might lead to tighter funding conditions and greater risk hostility, and confirm and households less prepared to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the tragic dispute 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 more boost in defence and infrastructure costs, together with productivity-enhancing reforms, would also contribute to development.
The outlook for euro area inflation is more unpredictable than usual, as a result of the unstable worldwide trade policy environment. Falling energy rates and a more powerful euro could put more downward pressure on inflation. This might be strengthened if higher tariffs caused lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions could result in greater volatility and risk hostility in financial markets, which would weigh on domestic demand and would thus likewise lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by pushing up import costs and including to capacity restraints in the domestic economy. An increase in defence and infrastructure spending might also raise inflation over the medium term. Extreme weather condition occasions, and the unfolding environment crisis more broadly, could increase food costs by more than anticipated.
Financial and monetary conditions
Risk-free interest rates have remained broadly unchanged considering that our last meeting. Equity costs have risen, and corporate bond spreads have narrowed, in action to more favorable news about global trade policies and the improvement in global danger sentiment.
Our past rates of interest cuts continue to make corporate loaning less costly. The average rates of interest on new loans to companies decreased to 3.8 percent in April, from 3.9 percent in March. The cost of releasing market-based debt was unchanged at 3.7 per cent. Bank providing to companies continued to reinforce gradually, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was subdued. The average rates of interest on new mortgages remained at 3. 3 percent in April, while development in mortgage financing increased to 1.9 percent.
In line with our financial policy strategy, the Governing Council completely examined the links between financial policy and financial stability. While euro location banks remain resistant, more comprehensive monetary stability threats remain elevated, in particular owing to highly unpredictable and unstable international trade policies. Macroprudential policy remains the very first line of defence against the build-up of monetary vulnerabilities, enhancing strength and maintaining macroprudential area.
reference.com
The Governing Council today chose to reduce the three crucial ECB interest rates by 25 basis points. In specific, the decision to decrease the deposit facility rate - the rate through which we steer the financial policy stance - is based on our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. We are determined to ensure 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 method to determining the proper monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook due to the inbound economic and monetary data, the characteristics of underlying inflation and the strength of financial 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 ensure that inflation stabilises sustainably at our medium-term target and to protect the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)