June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's statement 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 decided to reduce the 3 essential ECB interest rates by 25 basis points. In particular, the choice to lower the deposit center rate - the rate through which we guide the monetary policy position - is based upon our upgraded evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
Inflation is presently at around our 2 per cent medium-term target. In the baseline of the brand-new Eurosystem staff projections, heading 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 projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower presumptions for energy rates and a stronger euro. Staff anticipate inflation leaving out energy and food to average 2.4 per cent in 2025 and 1.9 percent in 2026 and 2027, broadly the same because March.
Staff see real GDP development averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 per cent in 2027. The unrevised development projection for 2025 reflects a more powerful than expected first quarter combined with weaker potential customers for the remainder of the year. While the unpredictability surrounding trade policies is expected to weigh on organization financial investment and exports, especially in the short-term, rising federal government investment in defence and infrastructure will progressively support development over the medium term. Higher and a robust labour market will allow homes to invest more. Together with more favourable financing conditions, this should make the economy more durable to international shocks.
In the context of high unpredictability, personnel likewise evaluated some of the mechanisms by which different trade policies might affect development and inflation under some alternative illustrative scenarios. These situations will be released with the personnel forecasts on our site. Under this scenario analysis, an additional escalation of trade tensions over the coming months would result in development and inflation being listed below the standard forecasts. By contrast, if trade tensions were resolved with a benign result, development and, to a lower degree, inflation would be higher than in the standard forecasts.
Most procedures 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 but continues to moderate noticeably, and revenues are partly buffering its influence on inflation. The concerns that increased unpredictability and an unstable market response to the trade tensions in April would have a tightening up impact on funding conditions have actually alleviated.
We are determined to make sure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in present conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to figuring out the proper financial policy stance. Our rate of interest choices will be based upon our evaluation of the inflation outlook due to the inbound financial and monetary data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate course.
The decisions taken today are set out in a press release readily available on our site.
I will now describe in more information 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 percent in the first quarter of 2025, according to Eurostat ´ s flash estimate. Unemployment, at 6.2 percent in April, is at its least expensive level considering that the launch of the euro, and employment grew by 0.3 percent in the first quarter of the year, according to the flash quote.
In line with the staff projections, study data point total to some weaker prospects in the near term. While manufacturing has strengthened, partly due to the fact that trade has actually been advanced in anticipation of higher tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a more powerful euro are expected to make it harder for firms to export. High unpredictability is expected to weigh on investment.
At the same time, a number of factors are keeping the economy resilient and ought to support growth over the medium term. A strong labour market, rising genuine incomes, robust private sector balance sheets and much easier financing conditions, in part because of our past rates of interest cuts, must all help consumers and companies stand up to the fallout from a volatile global environment. Recently revealed measures to step up defence and infrastructure investment ought to likewise strengthen development.
In the present geopolitical environment, it is much more immediate for fiscal and structural policies to make the euro location economy more efficient, competitive and durable. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, consisting of on simplification, ought to be swiftly adopted. This includes completing the cost savings and investment union, following a clear and ambitious timetable. It is likewise crucial to quickly establish the legal structure to prepare the ground for the potential intro of a digital euro. Governments ought to guarantee sustainable public financial resources in line with the EU ´ s financial governance framework, while prioritising important growth-enhancing structural reforms and strategic investment.
Inflation
Annual inflation decreased to 1.9 per cent in May, from 2.2 per cent in April, according to Eurostat ´ s flash estimate. Energy cost inflation stayed at -3.6 per cent. 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 per cent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had actually leapt in April mainly because prices for travel services around the Easter vacations increased by more than expected.
Most signs of underlying inflation suggest that inflation will stabilise sustainably at our two per cent medium-term target. Labour expenses are slowly moderating, as shown by inbound information on negotiated salaries and available nation data on payment per staff member. The ECB ´ s wage tracker points to an additional easing of worked out wage development in 2025, while the staff forecasts see wage growth being up to below 3 per cent in 2026 and 2027. While lower energy costs and a more powerful euro are putting downward 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, most likely reflecting news about trade stress. But a lot of measures of longer-term inflation expectations continue to stand at around 2 percent, which supports the stabilisation of inflation around our target.
Risk evaluation
Risks to financial development stay tilted to the downside. An additional escalation in international trade tensions and associated unpredictabilities might decrease euro location development by dampening exports and dragging down investment and usage. A wear and tear in financial market sentiment could lead to tighter funding conditions and greater danger hostility, and confirm and families less going to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, remain a significant source of unpredictability. By contrast, if trade and geopolitical tensions were resolved quickly, this might raise belief and spur activity. An additional increase in defence and infrastructure spending, together with productivity-enhancing reforms, would likewise add to growth.
The outlook for euro location inflation is more unsure than usual, as a result of the unpredictable global trade policy environment. Falling energy prices and a stronger euro could put additional down pressure on inflation. This might be reinforced if greater tariffs resulted in lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro area. Trade tensions could result in higher volatility and threat aversion in monetary markets, which would weigh on domestic demand and would thereby likewise lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by pressing up import prices and contributing to capability restrictions in the domestic economy. A boost in defence and infrastructure costs might also raise inflation over the medium term. Extreme weather condition events, and the unfolding environment crisis more broadly, could increase food prices by more than anticipated.
Financial and financial conditions
Risk-free interest rates have stayed broadly unchanged since our last meeting. Equity prices have increased, and corporate bond spreads have actually narrowed, in response to more favorable news about global trade policies and the improvement in worldwide risk sentiment.
Our previous interest rate cuts continue to make business borrowing less costly. The typical rate of interest on brand-new loans to firms declined 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 lending to companies continued to enhance slowly, growing by an annual rate of 2.6 percent in April after 2.4 per cent in March, while business bond issuance was suppressed. The typical interest rate on new mortgages remained at 3. 3 percent in April, while development in mortgage lending increased to 1.9 per cent.
In line with our monetary policy technique, the Governing Council thoroughly assessed the links in between monetary policy and financial stability. While euro area banks stay durable, wider financial stability dangers remain raised, in specific owing to extremely unpredictable and volatile international trade policies. Macroprudential policy stays the very first line of defence against the build-up of financial vulnerabilities, boosting durability and protecting macroprudential space.
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The Governing Council today chose to reduce the 3 essential ECB rate of interest by 25 basis points. In specific, the choice to decrease the deposit center rate - the rate through which we steer the financial policy stance - is based upon our updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are figured out to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in present conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting approach to identifying the proper financial policy position. Our rate of interest decisions will be based upon our evaluation 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 all set to change all of our instruments within our required to ensure that inflation stabilises sustainably at our medium-term target and to preserve the smooth functioning of financial policy transmission. (Compiled by Toby Chopra)