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 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 press conference.
The Governing Council today chose to reduce the 3 crucial ECB interest rates by 25 basis points. In specific, the decision to decrease the deposit facility rate - the rate through which we steer the monetary policy position - is based upon our upgraded evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of monetary policy transmission.
Inflation is presently at around our two percent medium-term target. In the standard of the brand-new Eurosystem staff projections, headline 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 forecasts, by 0.3 portion points for both 2025 and 2026, primarily reflect lower assumptions for energy prices and a stronger euro. Staff expect inflation omitting energy and food to average 2.4 per cent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged given 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 growth projection for 2025 shows a more powerful than expected first quarter combined 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, especially in the brief term, increasing federal government investment in defence and infrastructure will progressively support development over the medium term. Higher real earnings and a robust labour market will enable households to invest more. Together with more beneficial financing conditions, this ought to make the economy more resilient to worldwide shocks.
In the context of high uncertainty, personnel also evaluated some of the mechanisms by which different trade policies might impact growth and inflation under some alternative illustrative scenarios. These circumstances will be released with the personnel forecasts on our website. Under this scenario analysis, a more escalation of trade stress over the coming months would lead to development and inflation being below the standard projections. By contrast, if trade stress were resolved with a benign result, development and, to a lower extent, inflation would be greater than in the baseline forecasts.
Most procedures 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 but continues to moderate visibly, and profits are partially buffering its effect on inflation. The concerns that increased uncertainty and an unstable market response to the trade stress in April would have a tightening effect on financing conditions have alleviated.
We are identified to guarantee that inflation stabilises sustainably at our two percent medium-term target. Especially in current conditions of exceptional unpredictability, we will follow a data-dependent and meeting-by-meeting approach to figuring out the proper financial policy position. Our rates of interest choices will be based upon our assessment of the inflation outlook because of the inbound economic 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.
The choices taken today are set out in a press release offered on our website.
I will now describe in more detail how we see the economy and inflation developing and will then discuss our evaluation of monetary and .
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 least expensive level given that 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 forecasts, study information point general to some weaker potential customers in the near term. While manufacturing has strengthened, partially because trade has actually been brought forward in anticipation of greater tariffs, the more locally oriented services sector is slowing. Higher tariffs and a stronger euro are expected to make it harder for firms to export. High uncertainty is expected to weigh on financial investment.
At the very same time, several aspects are keeping the economy durable and must support growth over the medium term. A strong labour market, increasing genuine earnings, robust private sector balance sheets and easier financing conditions, in part due to the fact that of our past rate of interest cuts, should all assist consumers and companies withstand the fallout from an unstable global environment. Recently announced measures to step up defence and facilities investment should likewise boost growth.
In today 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, including on simplification, should be promptly embraced. This includes completing the cost savings and investment union, following a clear and enthusiastic timetable. It is also essential to quickly establish the legislative framework to prepare the ground for the possible intro of a digital euro. Governments must guarantee sustainable public finances in line with the EU ´ s financial governance framework, while prioritising important growth-enhancing structural reforms and tactical financial investment.
Inflation
Annual inflation decreased to 1.9 per cent in May, from 2.2 per cent in April, according to Eurostat ´ s flash quote. Energy cost inflation stayed at -3.6 percent. Food rate inflation rose to 3.3 per cent, from 3.0 per cent the month previously. Goods inflation was the same 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 mainly since rates for travel services around the Easter holidays increased by more than anticipated.
Most signs of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are gradually moderating, as suggested by inbound information on negotiated wages and available country information on compensation per employee. The ECB ´ s wage tracker indicate a more easing of worked out wage development in 2025, while the staff projections see wage growth falling 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 go back to target in 2027.
Short-term consumer inflation expectations edged up in April, most likely reflecting news about trade stress. But many measures 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 remain slanted to the drawback. A further escalation in international trade tensions and associated uncertainties might lower euro area growth by dampening exports and dragging down financial investment and consumption. A degeneration in financial market sentiment could cause tighter funding conditions and greater danger aversion, and confirm and homes less going to invest and take in. Geopolitical stress, such as Russia ´ s unjustified war against Ukraine and the terrible dispute in the Middle East, stay a major source of uncertainty. By contrast, if trade and geopolitical stress were solved swiftly, this might lift belief and spur activity. A more boost in defence and facilities costs, together with productivity-enhancing reforms, would likewise add to development.
The outlook for euro area inflation is more unpredictable than normal, as an outcome of the unpredictable international trade policy environment. Falling energy rates and a more powerful euro might put further 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 tensions could lead to greater volatility and danger aversion in monetary markets, which would weigh on domestic demand and would thus also lower inflation. By contrast, a fragmentation of international supply chains might raise inflation by pressing up import costs and adding to capacity restraints in the domestic economy. A boost in defence and facilities spending might likewise raise inflation over the medium term. Extreme weather events, and the unfolding climate crisis more broadly, could drive up food costs by more than expected.
Financial and monetary conditions
Risk-free interest rates have actually remained broadly the same because our last conference. Equity costs have increased, and corporate bond spreads have actually narrowed, in action to more positive news about international trade policies and the improvement in global danger belief.
Our past rates of interest cuts continue to make business borrowing less expensive. The typical rate of interest on brand-new loans to firms decreased to 3.8 per cent in April, from 3.9 percent in March. The expense of issuing market-based debt was unchanged at 3.7 per cent. Bank providing to companies continued to reinforce gradually, growing by a yearly rate of 2.6 percent in April after 2.4 per cent in March, while corporate bond issuance was suppressed. The typical rates of interest on brand-new mortgages remained at 3. 3 per cent in April, while development in mortgage loaning increased to 1.9 per cent.
In line with our monetary policy technique, the Governing Council completely evaluated the links between monetary policy and financial stability. While euro location banks stay resilient, broader monetary stability dangers remain raised, in particular owing to highly unsure and unpredictable worldwide trade policies. Macroprudential policy stays the very first line of defence versus the build-up of monetary vulnerabilities, enhancing strength and preserving macroprudential area.
The Governing Council today chose to lower the 3 key ECB rate of interest by 25 basis points. In specific, the choice to decrease the deposit center rate - the rate through which we guide the financial policy stance - is based upon our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission. We are determined to ensure that inflation stabilises sustainably at our two percent medium-term target. Especially in present conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting approach to figuring out the suitable monetary policy position. Our rate of interest decisions will be based upon our assessment of the inflation outlook because of the inbound financial and monetary data, 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 ready to adjust all of our instruments within our mandate to make sure that inflation stabilises sustainably at our medium-term target and to protect the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)