June 5 (Reuters) - Following is the text of European Reserve bank President Christine Lagarde's declaration after the bank's policy meeting 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 invite you to our interview.

The Governing Council today chose to lower the three crucial ECB interest rates by 25 basis points. In specific, the decision to reduce the deposit center rate - the rate through which we steer the financial policy stance - is based on our upgraded assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our 2 percent medium-term target. In the baseline of the new Eurosystem personnel projections, heading inflation is set to typical 2.0 percent in 2025, 1.6 percent in 2026 and 2.0 percent in 2027. The down modifications compared to the March projections, by 0.3 percentage points for both 2025 and 2026, generally reflect lower assumptions for energy costs and a stronger euro. Staff expect inflation omitting energy and food to typical 2.4 percent in 2025 and 1.9 percent in 2026 and 2027, broadly unchanged since March.

Staff see real GDP development 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 more powerful than anticipated very first quarter combined with weaker potential customers for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on service investment and exports, particularly in the short term, increasing federal government investment in defence and infrastructure will significantly support development over the medium term. Higher genuine earnings and a robust labour market will enable families to invest more. Together with more beneficial funding conditions, this must make the economy more resistant to worldwide shocks.

In the context of high uncertainty, personnel also evaluated some of the systems by which various trade policies might impact development and inflation under some alternative illustrative scenarios. These situations will be released with the personnel projections on our site. Under this scenario analysis, a more escalation of trade tensions over the coming months would result in growth and inflation being listed below the standard projections. By contrast, if trade tensions were resolved with a benign result, development and, to a lesser extent, inflation would be greater than in the baseline projections.

Most steps of underlying inflation recommend that inflation will settle at around our 2 per cent medium-term target on a continual basis. Wage growth is still raised 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 up effect on financing conditions have reduced.

We are determined to make sure that inflation stabilises sustainably at our two per cent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting technique to identifying the proper financial policy stance. Our rate of interest decisions will be based on our evaluation of the inflation outlook because of the incoming financial and financial information, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.

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

I will now describe in more detail how we see the economy and inflation developing and will then discuss our evaluation of monetary 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 price quote. Unemployment, at 6.2 per cent in April, is at its most affordable level given that the launch of the euro, and employment grew by 0.3 percent in the first quarter of the year, according to the flash price quote.

In line with the staff forecasts, study data point total to some weaker potential customers in the near term. While production has strengthened, partly due to the fact that 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 firms to export. High uncertainty is anticipated to weigh on investment.

At the very same time, several aspects are keeping the economy durable and ought to support development over the medium term. A strong labour market, increasing real incomes, robust private sector balance sheets and simpler funding conditions, in part since of our previous rates of interest cuts, must all help customers and companies stand up to the fallout from an unstable global environment. Recently revealed steps to step up defence and facilities investment ought to likewise boost development.

In the present geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro location economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, consisting of on simplification, should be promptly embraced. This consists of completing the savings and financial investment union, following a clear and ambitious schedule. It is also important to rapidly develop the legislative framework to prepare the ground for the possible introduction of a digital euro. Governments should ensure sustainable public finances in line with the EU ´ s financial governance structure, while prioritising essential growth-enhancing structural reforms and tactical 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 cost inflation remained at -3.6 per cent. Food price inflation increased to 3.3 percent, from 3.0 percent the month before. Goods inflation was the same at 0.6 per cent, while services inflation dropped to 3.2 percent, from 4.0 percent in April. Services inflation had jumped in April mainly because rates for travel services around the Easter vacations went up by more than expected.

Most indicators of underlying inflation recommend that inflation will stabilise sustainably at our two per cent medium-term target. Labour expenses are gradually moderating, as shown by inbound data on negotiated incomes and readily available country information on compensation per staff member. The ECB ´ s wage tracker indicate an additional easing of negotiated wage development in 2025, while the staff projections see wage development falling to 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 expected to return to target in 2027.

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

Risk assessment

Risks to economic growth stay tilted to the downside. An additional escalation in international trade stress and associated uncertainties could reduce euro area development by dampening exports and dragging down investment and consumption. A deterioration in monetary market sentiment could cause tighter funding conditions and greater danger hostility, and make firms and homes less going to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the awful conflict in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical tensions were resolved quickly, this could raise belief and spur activity. A further boost in defence and facilities spending, together with productivity-enhancing reforms, would also include to development.

The outlook for euro location inflation is more unpredictable than usual, as an outcome of the unstable global trade policy environment. Falling energy costs and a stronger euro might put further down pressure on inflation. This could be strengthened if greater tariffs resulted in lower need for euro area exports and to nations with overcapacity rerouting their exports to the euro area. Trade tensions might cause greater volatility and danger aversion in monetary markets, which would weigh on domestic need and would thus likewise lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by pressing up import prices and contributing to capability restrictions in the domestic economy. A boost in defence and facilities costs could likewise raise inflation over the medium term. Extreme weather condition events, and the unfolding climate crisis more broadly, could drive up food prices by more than expected.

Financial and financial conditions

Risk-free interest rates have actually remained broadly unchanged since our last conference. Equity prices have actually risen, and business bond spreads have actually narrowed, in action to more favorable news about international trade policies and the enhancement in global danger belief.

Our past interest rate cuts continue to make business loaning less costly. The average rates of interest on new loans to firms decreased to 3.8 percent in April, from 3.9 per cent in March. The cost of providing market-based debt was the same at 3.7 per cent. Bank providing to companies continued to enhance gradually, growing by a yearly rate of 2.6 per cent in April after 2.4 percent in March, while corporate bond issuance was subdued. The average interest rate 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 method, the Governing Council thoroughly assessed the links in between monetary policy and financial stability. While euro location banks remain resistant, wider monetary stability risks remain elevated, in particular owing to extremely unsure and unstable worldwide trade policies. Macroprudential policy remains the very first line of defence versus the accumulation of monetary vulnerabilities, improving strength and preserving macroprudential space.

The Governing Council today decided to reduce the 3 crucial ECB rates of interest by 25 basis points. In particular, the decision to lower the deposit center rate - the rate through which we guide the monetary policy stance - is based upon our upgraded assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are identified to ensure 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 figuring out the appropriate financial policy position. Our rates of interest decisions will be based on our evaluation of the inflation outlook in light of the inbound economic and financial data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate path.

In any case, we stand prepared to change all of our instruments within our mandate 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)