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 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 chose to lower the 3 essential ECB interest rates by 25 basis points. In particular, the choice to reduce the deposit facility rate - the rate through which we steer the financial 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 percent 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 to the March forecasts, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy rates and a more powerful euro. Staff expect inflation excluding 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.
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Staff see genuine GDP growth 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 shows a more powerful than expected very first quarter integrated with weaker prospects for the rest of the year. While the unpredictability surrounding trade policies is expected to weigh on business financial investment and exports, especially in the short-term, increasing government investment in defence and facilities will progressively support development over the medium term. Higher real earnings and a robust labour market will permit families to spend more. Together with more beneficial funding conditions, this must make the economy more resistant to worldwide shocks.
In the context of high unpredictability, staff likewise evaluated a few of the systems by which different trade policies might impact growth and inflation under some alternative illustrative situations. These scenarios will be released with the staff forecasts on our website. Under this circumstance analysis, a further escalation of trade tensions over the coming months would lead to growth and inflation being below the baseline projections. By contrast, if trade stress were fixed with a benign outcome, growth and, to a lesser degree, inflation would be greater than in the baseline projections.
Most steps of underlying inflation suggest 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 earnings are partly buffering its effect on inflation. The concerns that increased unpredictability and an unpredictable market reaction to the trade tensions in April would have a tightening effect on financing conditions have actually eased.
We are determined to make sure that inflation stabilises sustainably at our two percent medium-term target. Especially in existing conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the suitable monetary policy position. Our rate of interest choices will be based on our assessment of the inflation outlook due to the incoming economic and monetary data, the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate course.
The choices taken today are set out in a news release offered on our website.
I will now detail in more information how we see the economy and inflation developing and will then describe our evaluation of monetary and monetary conditions.
Economic activity
The economy grew by 0.3 per cent in the very first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 percent in April, is at its most affordable level since the launch of the euro, and work grew by 0.3 per cent in the first quarter of the year, according to the flash estimate.
In line with the personnel forecasts, survey data point total to some weaker potential customers in the near term. While manufacturing has actually reinforced, partly since 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 companies to export. High uncertainty is expected to weigh on investment.
At the exact same time, several aspects are keeping the economy durable and should support growth over the medium term. A strong labour market, rising real incomes, robust economic sector balance sheets and much easier funding conditions, in part because of our past rates of interest cuts, ought to all help consumers and firms hold up against the fallout from a volatile worldwide environment. Recently announced measures to step up defence and infrastructure investment need to also bolster development.
In today geopolitical environment, it is even more immediate for fiscal and structural policies to make the euro location economy more productive, competitive and resilient. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its proposals, including on simplification, ought to be promptly adopted. This includes finishing the cost savings and financial investment union, following a clear and enthusiastic timetable. It is likewise essential to rapidly establish the legislative structure to prepare the ground for the possible introduction of a digital euro. ought to guarantee sustainable public financial resources in line with the EU ´ s economic governance framework, while prioritising important growth-enhancing structural reforms and strategic financial investment.
Inflation
Annual inflation decreased to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash estimate. Energy price inflation remained at -3.6 percent. Food cost inflation increased to 3.3 per cent, from 3.0 percent the month before. 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 jumped in April primarily since rates for travel services around the Easter holidays increased by more than expected.
Most indicators of underlying inflation recommend that inflation will stabilise sustainably at our two per cent medium-term target. Labour costs are gradually moderating, as suggested by inbound data on worked out incomes and readily available country information on settlement per worker. The ECB ´ s wage tracker points to an additional easing of worked out wage growth in 2025, while the staff projections see wage growth being up to below 3 per cent in 2026 and 2027. While lower energy rates and a stronger euro are putting downward pressure on inflation in the near term, inflation is anticipated to return to target in 2027.
Short-term consumer inflation expectations edged up in April, most likely reflecting news about trade tensions. But most 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 financial development remain tilted to the disadvantage. A more escalation in worldwide trade stress and associated uncertainties could reduce euro location development by moistening exports and dragging down investment and usage. A wear and tear in monetary market belief might cause tighter financing conditions and higher risk aversion, and make companies and families less going to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the awful dispute in the Middle East, stay a major source of uncertainty. By contrast, if trade and geopolitical tensions were solved swiftly, this could lift sentiment and spur activity. An additional boost in defence and infrastructure spending, together with productivity-enhancing reforms, would likewise include to development.
The outlook for euro area inflation is more unsure than typical, as a result of the volatile global trade policy environment. Falling energy rates and a more powerful euro might put more downward pressure on inflation. This might be reinforced if greater tariffs led to lower demand for euro location exports and to countries with overcapacity rerouting their exports to the euro area. Trade tensions might cause higher volatility and danger hostility in financial markets, which would weigh on domestic need and would consequently also lower inflation. By contrast, a fragmentation of international supply chains could raise inflation by pressing up import rates and contributing to capability restrictions in the domestic economy. A boost in defence and infrastructure costs could 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 anticipated.
Financial and monetary conditions
Risk-free rates of interest have actually remained broadly unchanged since our last meeting. Equity costs have risen, and business bond spreads have narrowed, in response to more positive news about international trade policies and the improvement in international danger sentiment.
Our past rates of interest cuts continue to make corporate loaning more economical. The typical rates of interest on brand-new loans to firms decreased to 3.8 percent in April, from 3.9 percent in March. The cost of issuing market-based debt was unchanged at 3.7 percent. Bank lending to firms continued to reinforce gradually, growing by a yearly rate of 2.6 percent in April after 2.4 percent in March, while corporate bond issuance was suppressed. The average rate of interest 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 financial policy method, the Governing Council thoroughly evaluated the links between financial policy and monetary stability. While euro area banks stay durable, wider financial stability threats remain raised, in specific owing to extremely unpredictable and volatile worldwide trade policies. Macroprudential policy remains the very first line of defence against the accumulation of monetary vulnerabilities, enhancing durability and protecting macroprudential space.
The Governing Council today chose to reduce the three crucial ECB interest rates by 25 basis points. In specific, the choice to decrease the deposit facility rate - the rate through which we guide the financial policy stance - is based upon our updated 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 2 per cent medium-term target. Especially in present conditions of remarkable unpredictability, we will follow a data-dependent and meeting-by-meeting method to figuring out the suitable monetary policy stance. Our interest rate choices will be based upon our evaluation 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 prepared to change all of our instruments within our mandate 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)