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 declaration on ECB website: https://www.ecb.europa.eu/press/press_conference/monetary-policy-statement/2025/html/ecb.is250605~f00a36ef2b.en.html
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Good afternoon, the Vice-President and I invite you to our interview.
The Governing Council today decided to reduce the three crucial ECB rates of interest by 25 basis points. In specific, the choice to decrease the deposit center rate - the rate through which we steer 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.
Inflation is currently at around our 2 per cent medium-term target. In the standard of the brand-new Eurosystem staff forecasts, heading inflation is set to average 2.0 percent in 2025, 1.6 percent 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, primarily show lower assumptions for energy costs and a stronger euro. Staff anticipate inflation leaving out energy and food to average 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same 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 forecast for 2025 shows a stronger than expected first quarter integrated with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on organization financial investment and exports, especially in the short term, increasing government financial investment in defence and infrastructure will increasingly support growth over the medium term. Higher real earnings and a robust labour market will allow households to spend more. Together with more favourable funding conditions, this should make the economy more resistant to international shocks.
In the context of high unpredictability, personnel likewise assessed some of the mechanisms by which different trade policies could affect growth and inflation under some alternative illustrative circumstances. These circumstances will be published with the staff projections on our site. Under this scenario analysis, an additional escalation of trade stress over the coming months would lead to growth and inflation being listed below the baseline forecasts. By contrast, if trade tensions were resolved with a benign outcome, development and, to a lesser degree, inflation would be higher than in the standard projections.
Most procedures of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is still raised however continues to moderate noticeably, and earnings are partially buffering its effect on inflation. The concerns that increased uncertainty and an unpredictable market action to the trade tensions in April would have a tightening up effect on financing conditions have actually alleviated.
We are identified to make sure that inflation stabilises sustainably at our 2 per cent medium-term target. Especially in present conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting approach to figuring out the appropriate monetary policy position. Our interest rate choices will be based on our assessment of the inflation outlook in light of the inbound financial and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path.
The choices taken today are set out in a news release available on our website.
I will now outline in more information how we see the economy and inflation developing and will then explain our evaluation of financial and financial conditions.
Economic activity
The economy grew by 0.3 per cent 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 employment grew by 0.3 percent in the first quarter of the year, according to the flash price quote.
In line with the personnel projections, survey information point general to some weaker prospects in the near term. While manufacturing has reinforced, partially because trade has been advanced in anticipation of higher 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 exact same time, a number of aspects are keeping the economy durable and should support development over the medium term. A strong labour market, rising genuine earnings, robust economic sector balance sheets and much easier funding conditions, in part because of our previous rate of interest cuts, ought to all help consumers and firms hold up against the fallout from an unstable global environment. Recently revealed measures to step up defence and facilities investment ought to also bolster development.
In today geopolitical environment, it is much more immediate for financial and structural policies to make the euro location economy more productive, competitive and resistant. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its propositions, consisting of on simplification, ought to be swiftly adopted. This includes finishing the cost savings and investment union, following a clear and ambitious schedule. It is likewise crucial to rapidly establish the legal framework to prepare the ground for the potential intro of a digital euro. Governments should make sure sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising vital 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 price inflation stayed at -3.6 per cent. Food cost inflation rose to 3.3 per cent, from 3.0 per cent the month in the past. Goods inflation was the same at 0.6 per cent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had actually leapt in April generally since costs for travel services around the Easter vacations went up by more than anticipated.
Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour costs are slowly moderating, as shown by inbound information on negotiated wages and readily available country information on settlement per staff member. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the personnel forecasts see wage development being up to below 3 percent in 2026 and 2027. While lower energy prices 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 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 assessment
Risks to financial growth stay slanted to the disadvantage. An additional escalation in worldwide trade stress and associated uncertainties could reduce euro area growth by dampening exports and down investment and usage. A deterioration in financial market sentiment could cause tighter funding conditions and greater danger hostility, and confirm and homes less ready to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the terrible conflict in the Middle East, remain a major source of uncertainty. By contrast, if trade and geopolitical tensions were fixed promptly, this could lift sentiment and spur activity. A further boost in defence and facilities costs, together with productivity-enhancing reforms, would likewise include to growth.
The outlook for euro area inflation is more unpredictable than normal, as an outcome of the unstable international trade policy environment. Falling energy rates and a more powerful euro might put further downward pressure on inflation. This might be enhanced if higher tariffs caused lower need for euro location exports and to nations with overcapacity rerouting their exports to the euro area. Trade stress could cause greater volatility and threat hostility in financial markets, which would weigh on domestic demand and would consequently likewise lower inflation. By contrast, a fragmentation of worldwide supply chains might raise inflation by rising import rates and contributing to capability restraints in the domestic economy. An increase in defence and facilities spending could likewise raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, might drive up food costs by more than expected.
Financial and monetary conditions
Risk-free interest rates have actually stayed broadly unchanged given that our last meeting. Equity rates have actually increased, and corporate bond spreads have actually narrowed, in reaction to more favorable news about international trade policies and the enhancement in international danger sentiment.
Our past rates of interest cuts continue to make corporate borrowing less costly. The typical rate of interest on new loans to firms declined to 3.8 per cent in April, from 3.9 percent in March. The expense of providing market-based financial obligation was the same at 3.7 percent. Bank lending to companies continued to enhance gradually, growing by an annual rate of 2.6 percent in April after 2.4 percent in March, while corporate bond issuance was subdued. The typical rate of interest on brand-new mortgages remained at 3. 3 per cent in April, while development in mortgage lending increased to 1.9 per cent.
In line with our financial policy strategy, the Governing Council completely evaluated the links in between financial policy and financial stability. While euro area banks remain durable, wider monetary stability threats remain elevated, in specific owing to highly uncertain and unstable worldwide trade policies. Macroprudential policy remains the first line of defence versus the build-up of monetary vulnerabilities, boosting strength and maintaining macroprudential area.
The Governing Council today decided to decrease the 3 crucial ECB rates of interest 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 characteristics of underlying inflation and the strength of monetary policy transmission. We are figured out to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the proper financial policy position. Our rate of interest choices will be based upon our assessment of the inflation outlook because of the inbound economic 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.
In any case, we stand prepared 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 financial policy transmission. (Compiled by Toby Chopra)