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

Link to statement 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 chose to lower the three essential ECB interest rates by 25 basis points. In specific, the choice to lower the deposit facility rate - the rate through which we steer the financial policy position - is based on our updated evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission.

Inflation is currently at around our 2 per cent medium-term target. In the baseline of the brand-new Eurosystem staff projections, heading inflation is set to average 2.0 percent in 2025, 1.6 percent in 2026 and 2.0 per cent in 2027. The down revisions compared to the March forecasts, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower presumptions 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 percent in 2026 and 2027, broadly unchanged since March.

Staff see genuine GDP growth balancing 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth forecast for 2025 reflects a more powerful than anticipated first quarter integrated with weaker potential customers for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on service financial investment and exports, particularly in the short term, increasing government financial investment in defence and facilities will significantly support development over the medium term. Higher real earnings and a robust labour market will allow households to invest more. Together with more favourable financing conditions, this ought to make the economy more resistant to global shocks.

In the context of high uncertainty, personnel also assessed some of the systems by which different trade policies might affect development and inflation under some alternative illustrative situations. These circumstances will be released with the staff forecasts on our website. Under this circumstance analysis, a more escalation of trade stress over the coming months would result in growth and inflation being below the baseline projections. By contrast, if trade tensions were resolved with a benign result, development and, to a lesser degree, inflation would be greater than in the standard projections.

Most procedures of underlying inflation recommend that inflation will settle at around our 2 per cent medium-term target on a sustained 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 an unpredictable market action to the trade tensions in April would have a tightening up effect on funding conditions have relieved.

We are figured out to make sure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting method to figuring out the appropriate financial policy stance. Our rates of interest choices will be based on 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 path.

The choices taken today are set out in a news release available on our website.

I will now describe in more information how we see the economy and inflation developing and will then describe our assessment of financial 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 per cent in April, is at its least expensive 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 estimate.

In line with the staff projections, study information point general to some weaker potential customers in the near term. While production has actually strengthened, partially due to the fact that trade has actually been brought forward in anticipation of higher tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for companies to export. High unpredictability is anticipated to weigh on financial investment.

At the very same time, a number of elements are keeping the economy resilient and ought to 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 past rate of interest cuts, should all help consumers and firms withstand the fallout from an unpredictable global environment. Recently revealed steps to step up defence and facilities financial investment need to also reinforce growth.

In the present geopolitical environment, it is much more immediate for financial and structural policies to make the euro area economy more efficient, competitive and resilient. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, consisting of on simplification, need to be swiftly adopted. This consists of completing the savings and financial investment union, following a clear and enthusiastic schedule. It is likewise crucial to quickly establish the legislative structure to prepare the ground for the potential introduction of a digital euro. Governments should guarantee sustainable public finances in line with the EU ´ s economic governance structure, while prioritising important growth-enhancing structural reforms and tactical investment.

Inflation

Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy rate inflation stayed at -3.6 per cent. Food price inflation increased to 3.3 percent, from 3.0 per cent the month before. Goods inflation was unchanged at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 per cent in April. Services inflation had leapt in April primarily since rates for travel services around the Easter vacations went up by more than expected.

Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour expenses are slowly moderating, as indicated by inbound information on worked out incomes and readily available country information on compensation per worker. The ECB ´ s wage tracker indicate an additional easing of worked out wage development in 2025, while the staff projections see wage development falling to listed 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 go back 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 evaluation

Risks to economic growth remain tilted to the disadvantage. An additional escalation in global trade tensions and associated unpredictabilities could reduce euro area growth by dampening exports and dragging down investment and consumption. A wear and tear in financial market sentiment might cause tighter funding conditions and greater danger aversion, and confirm and homes less ready to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the terrible dispute in the Middle East, remain a major source of unpredictability. By contrast, if trade and geopolitical tensions were resolved promptly, this could raise sentiment and spur activity. A more increase in defence and facilities spending, together with productivity-enhancing reforms, would likewise include to growth.

The outlook for euro area inflation is more uncertain than normal, as a result of the unpredictable international trade policy environment. Falling energy rates and a more powerful euro could put more downward pressure on inflation. This could be strengthened if higher tariffs resulted in lower need for euro location exports and to nations with overcapacity rerouting their exports to the euro location. Trade stress might lead to greater volatility and risk aversion in financial markets, which would weigh on domestic demand and would consequently likewise lower inflation. By contrast, a fragmentation of global supply chains might raise inflation by rising import prices and contributing to capability constraints in the domestic economy. A boost in defence and facilities spending could likewise raise inflation over the medium term. Extreme weather events, and the unfolding environment crisis more broadly, might increase food rates by more than expected.

Financial and financial conditions

Risk-free rates of interest have actually remained broadly unchanged since our last meeting. Equity rates have actually increased, and business bond spreads have narrowed, in action to more positive news about worldwide trade policies and the improvement in worldwide threat belief.

Our past interest rate cuts continue to make corporate loaning more economical. The average rates of interest on brand-new loans to companies declined to 3.8 percent in April, from 3.9 percent in March. The cost of issuing market-based financial obligation was unchanged at 3.7 per cent. Bank providing to firms continued to enhance gradually, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was controlled. The typical rate of interest on brand-new mortgages remained at 3. 3 percent in April, while development in mortgage lending increased to 1.9 percent.

In line with our monetary policy method, the Governing Council completely evaluated the links in between financial policy and financial stability. While euro area banks stay resistant, wider monetary stability risks remain elevated, in specific owing to extremely unsure and unstable global trade policies. Macroprudential policy remains the very first line of defence versus the build-up of financial vulnerabilities, boosting durability and preserving macroprudential area.

The Governing Council today chose to lower the 3 essential ECB rate of interest by 25 basis points. In specific, the choice to lower the deposit facility rate - the rate through which we guide the monetary policy position - is based on our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission. We are determined to make sure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in present conditions of extraordinary unpredictability, we will follow a data-dependent and meeting-by-meeting method to figuring out the appropriate financial policy position. Our rate of interest decisions will be based upon our assessment of the inflation outlook in light of the incoming financial and financial information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate course.

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