TEXT-Lagarde's Statement After ECB Policy Meeting
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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 conference on Thursday:

Link to 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 invite you to our interview.

The Governing Council today decided to lower the three key ECB rates of interest by 25 basis points. In particular, the decision to decrease the deposit facility rate - the rate through which we steer the monetary policy stance - is based upon our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our two percent medium-term target. In the standard of the brand-new Eurosystem staff projections, headline inflation is set to average 2.0 percent in 2025, 1.6 percent 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, mainly show lower assumptions for energy prices and a more powerful euro. Staff expect inflation excluding energy and food to average 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged considering that March.

Staff see genuine GDP development averaging 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 percent in 2027. The unrevised development 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 company investment and exports, specifically in the short-term, increasing government investment in defence and infrastructure will progressively support growth over the medium term. Higher genuine earnings and a robust labour market will allow households to invest more. Together with more favourable financing conditions, this need to make the economy more durable to worldwide shocks.

In the context of high unpredictability, staff also assessed a few of the mechanisms by which different trade policies might affect growth and inflation under some alternative illustrative circumstances. These scenarios will be published with the staff projections on our website. Under this circumstance analysis, a more escalation of trade stress over the coming months would lead to growth and inflation being below the baseline projections. By contrast, if trade stress were fixed with a benign outcome, growth and, to a lower degree, inflation would be greater than in the standard forecasts.

Most measures of underlying inflation suggest that inflation will settle at around our two percent medium-term target on a continual basis. Wage growth is still elevated but continues to moderate visibly, and profits are partially buffering its effect on inflation. The concerns that increased unpredictability and an unpredictable market action to the trade stress in April would have a tightening impact on funding conditions have actually alleviated.

We are figured out to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting approach to figuring out the suitable 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 information, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

The decisions taken today are set out in a press release available on our website.

I will now lay out in more information how we see the economy and inflation establishing and will then discuss our assessment of financial and monetary 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 because the launch of the euro, and work 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 data point overall to some weaker prospects in the near term. While manufacturing has strengthened, partially because trade has been brought forward in anticipation of higher 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 expected to weigh on financial investment.

At the very same time, several elements are keeping the economy durable and needs to support development over the medium term. A strong labour market, rising genuine incomes, robust personal sector balance sheets and simpler funding conditions, in part because of our past interest rate cuts, must all assist consumers and companies stand up to the fallout from a volatile worldwide environment. Recently revealed procedures to step up defence and infrastructure financial investment ought to likewise strengthen growth.

In today geopolitical environment, it is much more urgent for financial and structural policies to make the euro area economy more efficient, competitive and resistant. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, consisting of on simplification, ought to be promptly adopted. This consists of finishing the savings and financial investment union, following a clear and ambitious timetable. It is also essential to rapidly establish the legislative framework to prepare the ground for the prospective introduction of a digital euro. Governments ought to make sure sustainable public financial resources in line with the EU ´ s financial governance structure, while prioritising essential growth-enhancing structural reforms and tactical investment.

Inflation

Annual inflation declined to 1.9 percent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy rate inflation stayed at -3.6 percent. Food cost inflation increased to 3.3 per cent, from 3.0 percent the month in the past. Goods inflation was unchanged at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 percent in April. Services inflation had actually leapt in April mainly due to the fact that prices for travel services around the Easter holidays increased by more than expected.
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Most indications of underlying inflation recommend that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour expenses are slowly moderating, as suggested by incoming information on worked out salaries and readily available nation data on payment per employee. The ECB ´ s wage tracker indicate an additional easing of negotiated wage growth in 2025, while the staff projections see wage growth being up to listed below 3 percent in 2026 and 2027. While lower energy costs and a more powerful euro are putting down 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, likely showing news about trade tensions. But most 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 remain slanted to the drawback. An additional escalation in global trade stress and associated uncertainties might lower euro area development by dampening exports and dragging down financial investment and usage. A degeneration in financial market belief could lead to tighter financing conditions and greater threat hostility, and confirm and homes less ready to invest and take in. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the terrible dispute in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical tensions were solved promptly, this might raise belief and spur activity. An additional boost in defence and infrastructure spending, together with productivity-enhancing reforms, would also add to development.

The outlook for euro location inflation is more uncertain than usual, as an outcome of the unpredictable international trade policy environment. Falling energy costs and a stronger euro could put additional down pressure on inflation. This could be reinforced if greater tariffs caused lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions might cause greater volatility and danger hostility in financial markets, which would weigh on domestic demand and would therefore also lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by rising import prices and contributing to capacity restrictions in the domestic economy. A boost in defence and infrastructure spending might likewise 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 expected.

Financial and monetary conditions

Risk-free interest rates have remained broadly the same since our last conference. Equity rates have actually increased, and business bond spreads have narrowed, in action to more positive news about international trade policies and the improvement in international risk belief.

Our previous interest rate cuts continue to make business borrowing cheaper. The average rate of interest on new loans to companies declined to 3.8 percent in April, from 3.9 per cent in March. The cost of issuing market-based financial obligation was unchanged at 3.7 percent. Bank providing to firms continued to reinforce gradually, growing by an annual rate of 2.6 per cent in April after 2.4 per cent in March, while business bond issuance was subdued. The average interest rate on brand-new mortgages stayed at 3. 3 percent in April, while growth in mortgage financing increased to 1.9 percent.

In line with our monetary policy strategy, the Governing Council completely evaluated the links in between monetary policy and monetary stability. While euro location banks remain durable, broader financial stability risks remain elevated, in particular owing to highly unsure and unstable worldwide trade policies. Macroprudential policy remains the first line of defence against the build-up of monetary vulnerabilities, improving strength and protecting macroprudential space.

The Governing Council today decided to decrease the three key ECB interest rates by 25 basis points. In specific, the choice to lower the deposit facility rate - the rate through which we guide the financial policy position - is based on our upgraded evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are figured out to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the suitable monetary policy position. Our rates of interest choices will be based on our assessment of the inflation outlook due to the inbound economic and financial information, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate course.

In any case, we stand ready to adjust all of our instruments within our mandate 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)
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