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June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's declaration after the bank's policy conference on Thursday:

Link to statement 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 chose to decrease the three crucial ECB interest rates by 25 basis points. In specific, the choice to reduce the deposit center rate - the rate through which we steer the financial policy stance - is based upon our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.

Inflation is currently at around our 2 percent medium-term target. In the standard of the new Eurosystem staff projections, headline inflation is set to typical 2.0 per cent in 2025, 1.6 percent in 2026 and 2.0 per cent in 2027. The downward revisions compared with the March forecasts, by 0.3 percentage points for both 2025 and 2026, primarily show lower presumptions for energy costs and a more powerful euro. Staff anticipate inflation omitting energy and food to typical 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged 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 shows a more powerful than anticipated very first quarter combined with weaker potential customers for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on business investment and exports, especially in the short term, increasing government investment in defence and facilities will significantly support growth over the medium term. Higher genuine incomes and a robust labour market will enable families to invest more. Together with more favourable financing conditions, this need to make the economy more resilient to international shocks.

In the context of high unpredictability, staff also evaluated some of the systems by which different trade policies could affect development and inflation under some alternative illustrative scenarios. These circumstances will be published with the personnel projections on our site. Under this situation analysis, an additional escalation of trade stress over the coming months would lead to development and inflation being listed below the standard forecasts. By contrast, if trade stress were resolved with a benign outcome, growth and, to a lower level, inflation would be higher than in the standard forecasts.

Most measures of underlying inflation recommend that inflation will settle at around our 2 percent medium-term target on a sustained basis. Wage development is still raised however continues to moderate visibly, and earnings are partly buffering its impact on inflation. The issues that increased uncertainty and a volatile market reaction to the trade tensions in April would have a tightening up influence on financing conditions have reduced.

We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to determining the suitable monetary policy position. Our rate of interest decisions will be based upon our evaluation of the inflation outlook in light of the incoming financial and financial 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 news release available on our website.

I will now lay out in more detail how we see the economy and inflation establishing and will then describe our evaluation of monetary 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 most affordable level because the launch of the euro, and work grew by 0.3 percent in the first quarter of the year, according to the flash quote.

In line with the personnel projections, survey information point general to some weaker potential customers in the near term. While manufacturing has enhanced, partly 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 expected to weigh on financial investment.

At the very same time, numerous aspects are keeping the economy durable and should support development over the medium term. A strong labour market, rising genuine incomes, robust economic sector balance sheets and simpler funding conditions, in part since of our past rates of interest cuts, must all help consumers and firms endure the fallout from an unstable worldwide environment. Recently announced steps to step up defence and infrastructure investment should also bolster development.

In the present geopolitical environment, it is a lot more immediate for financial and structural policies to make the euro area economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its proposals, including on simplification, must be swiftly embraced. This includes finishing the savings and investment union, following a clear and enthusiastic timetable. It is also essential to rapidly develop the legal framework to prepare the ground for the prospective intro of a digital euro. Governments should guarantee 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 declined to 1.9 percent in May, from 2.2 per cent in April, according to Eurostat ´ s flash estimate. Energy price inflation remained at -3.6 per cent. Food price inflation increased to 3.3 per cent, from 3.0 percent the month in the past. 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 leapt in April generally since prices for travel services around the Easter vacations increased by more than anticipated.

Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour expenses are slowly moderating, as shown by inbound information on negotiated incomes and available nation information on compensation per staff member. The ECB ´ s wage tracker points to an additional easing of negotiated wage growth 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 consumer inflation expectations edged up in April, most likely reflecting news about trade stress. But the majority of steps 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 slanted to the drawback. A more escalation in worldwide trade tensions and associated unpredictabilities could decrease euro location growth by moistening exports and dragging down investment and usage. A wear and tear in financial market sentiment could result in tighter financing conditions and greater threat hostility, and confirm and homes less ready to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the terrible conflict in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical stress were fixed quickly, this might raise belief and spur activity. A more increase in defence and facilities spending, together with productivity-enhancing reforms, would likewise contribute to development.

The outlook for euro location inflation is more uncertain than typical, as an outcome of the volatile global trade policy environment. Falling energy prices and a more powerful euro might put additional down pressure on inflation. This could be strengthened if greater tariffs caused lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro location. Trade stress could result in greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would therefore also lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by rising import costs and contributing to capability restraints in the domestic economy. A boost in defence and infrastructure costs could also raise inflation over the medium term. Extreme weather events, and the unfolding environment crisis more broadly, might increase food costs by more than expected.

Financial and monetary conditions

Risk-free rate of interest have actually remained broadly the same given that our last conference. Equity rates have risen, and corporate bond spreads have narrowed, in reaction to more favorable news about global trade policies and the enhancement in international threat sentiment.

Our past rate of interest cuts continue to make corporate borrowing less costly. The typical rate of interest on brand-new loans to firms declined to 3.8 per cent in April, from 3.9 per cent in March. The expense of issuing market-based financial obligation was unchanged at 3.7 per cent. Bank providing to firms continued to enhance slowly, growing by an annual rate of 2.6 percent in April after 2.4 percent in March, while corporate bond issuance was suppressed. The typical interest rate on new mortgages stayed at 3. 3 per cent in April, while growth in mortgage loaning increased to 1.9 per cent.

In line with our financial policy strategy, the Governing Council completely examined the links between financial policy and financial stability. While euro area banks remain resilient, more comprehensive monetary stability risks stay elevated, in specific owing to highly unpredictable and volatile international trade policies. Macroprudential policy stays the first line of defence versus the build-up of financial vulnerabilities, enhancing resilience and protecting macroprudential space.

The Governing Council today decided to lower the three crucial ECB rates of interest by 25 basis points. In specific, the decision to lower the deposit facility rate - the rate through which we guide the financial 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 identified to make sure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in present conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting approach to identifying the proper financial policy stance. Our interest rate decisions will be based on our of the inflation outlook in light of the inbound financial and monetary information, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.

In any case, we stand prepared to adjust all of our instruments within our required to make sure that inflation stabilises sustainably at our medium-term target and to preserve the smooth performance of financial policy transmission. (Compiled by Toby Chopra)