June 5 (Reuters) - Following is the text of European Central Bank President Christine Lagarde's declaration 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 welcome you to our press conference.
The Governing Council today chose to lower the 3 crucial ECB interest rates by 25 basis points. In specific, the choice to lower the deposit facility rate - the rate through which we steer the monetary policy position - is based on 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 baseline of the new Eurosystem staff projections, heading inflation is set to average 2.0 percent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The downward modifications compared to the March projections, by 0.3 portion points for both 2025 and 2026, mainly show lower presumptions for energy prices and a more powerful euro. Staff anticipate inflation excluding energy and food to typical 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 averaging 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 percent in 2027. The unrevised growth projection 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 anticipated to weigh on company financial investment and exports, particularly in the brief term, rising government investment in defence and facilities will progressively support development over the medium term. Higher genuine incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this need to make the economy more resistant to global shocks.
In the context of high uncertainty, staff likewise assessed some of the systems by which different trade policies might impact development and inflation under some alternative illustrative circumstances. These scenarios will be released with the personnel projections on our website. Under this situation analysis, a further escalation of trade stress over the coming months would result in growth and inflation being below the baseline projections. By contrast, if trade stress were resolved with a benign result, development and, to a lesser degree, inflation would be higher than in the standard forecasts.
Most procedures of underlying inflation suggest that inflation will settle at around our 2 percent medium-term target on a continual basis. Wage growth is still elevated but continues to moderate visibly, and revenues are partly buffering its influence on inflation. The issues that increased uncertainty and an unstable market reaction to the trade tensions in April would have a tightening influence on financing conditions have reduced.
We are figured out 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 technique to figuring out the suitable monetary policy stance. Our rate of interest decisions will be based on our assessment of the inflation outlook because of the incoming financial and financial data, the characteristics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a specific rate course.
The decisions taken today are set out in a news release offered on our website.
I will now lay out in more information how we see the economy and inflation developing and will then explain 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 price quote. Unemployment, at 6.2 per cent in April, is at its lowest 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 estimate.
In line with the staff projections, survey information point general to some weaker prospects in the near term. While production has actually enhanced, partially due to the fact that trade has actually been brought forward in anticipation of greater tariffs, the more locally 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 anticipated to weigh on financial investment.
At the exact same time, several elements are keeping the economy durable and needs to support growth over the medium term. A strong labour market, increasing genuine incomes, robust private sector balance sheets and easier funding conditions, in part because of our past interest rate cuts, need to all assist consumers and companies withstand the fallout from an unpredictable worldwide environment. Recently revealed measures to step up defence and facilities financial investment need to likewise boost growth.
In today geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its proposals, consisting of on simplification, should be quickly adopted. This includes finishing the savings and investment union, following a clear and enthusiastic schedule. It is also essential to rapidly develop the legislative structure 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 important growth-enhancing structural reforms and tactical investment.
Inflation
Annual inflation declined 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 price inflation rose to 3.3 percent, from 3.0 percent the month previously. 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 holidays increased by more than expected.
Most indications of underlying inflation recommend that inflation will stabilise sustainably at our 2 per cent medium-term target. Labour costs are gradually moderating, as shown by incoming information on worked out earnings and offered country data on payment per employee. The ECB ´ s wage tracker points to a more easing of worked out wage growth in 2025, while the personnel forecasts see wage development falling to listed below 3 per cent in 2026 and 2027. While lower energy rates and a stronger euro are putting down 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, likely showing news about trade tensions. But a lot of procedures 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 financial growth stay slanted to the downside. A more escalation in global trade stress and associated uncertainties might reduce euro location growth by moistening exports and dragging down financial investment and consumption. A deterioration in financial market sentiment could cause tighter funding conditions and higher threat hostility, and confirm and homes less prepared to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war versus Ukraine and the terrible conflict in the Middle East, stay a major source of uncertainty. By contrast, if trade and geopolitical tensions were fixed swiftly, this might lift sentiment and spur activity. A more increase in defence and facilities spending, together with productivity-enhancing reforms, would also contribute to development.
The outlook for euro location inflation is more unpredictable than typical, as a result of the unpredictable global trade policy environment. Falling energy prices and a stronger euro could put more down pressure on inflation. This could be strengthened if higher tariffs led to lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro area. Trade stress might result in greater volatility and threat aversion in monetary markets, which would weigh on domestic demand and would consequently likewise lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by pushing up import prices and adding to capability restraints in the domestic economy. An increase in defence and facilities spending might likewise over the medium term. Extreme weather events, and the unfolding environment crisis more broadly, might drive up food rates by more than anticipated.
Financial and financial conditions
Risk-free rate of interest have remained broadly unchanged since our last meeting. Equity prices have actually increased, and corporate bond spreads have actually narrowed, in action to more favorable news about global trade policies and the enhancement in global threat sentiment.
Our past rate of interest cuts continue to make business loaning more economical. The typical rates of interest on brand-new loans to firms decreased to 3.8 per cent in April, from 3.9 per cent in March. The cost of issuing market-based financial obligation was unchanged at 3.7 per cent. Bank providing 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 corporate bond issuance was subdued. The average rate of interest on new mortgages remained at 3. 3 per cent in April, while growth in mortgage lending increased to 1.9 percent.
In line with our financial policy technique, the Governing Council completely examined the links between financial policy and monetary stability. While euro area banks remain durable, wider financial stability threats remain elevated, in particular owing to highly unpredictable and unpredictable worldwide trade policies. Macroprudential policy remains the first line of defence against the accumulation of monetary vulnerabilities, boosting strength and protecting macroprudential space.
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The Governing Council today chose to lower the 3 crucial ECB rates of interest by 25 basis points. In specific, the choice to reduce the deposit center rate - the rate through which we steer the monetary policy stance - is based on our updated assessment of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission. We are determined to ensure that inflation stabilises sustainably at our two per cent medium-term target. Especially in existing conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting approach to figuring out the proper financial policy position. Our rate of interest choices will be based upon our assessment of the inflation outlook because of the incoming financial and financial information, the dynamics of underlying inflation and the strength of monetary 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 mandate to make sure that inflation stabilises sustainably at our medium-term target and to protect the smooth functioning of financial policy transmission. (Compiled by Toby Chopra)
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