June 5 (Reuters) - Following is the text of bank President Christine Lagarde's statement after the bank's policy conference on Thursday:
Link to declaration 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 decided to lower the 3 crucial ECB rates of interest 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 updated evaluation of the inflation outlook, the dynamics of underlying inflation and the strength of financial policy transmission.
Inflation is currently at around our 2 percent medium-term target. In the standard of the brand-new Eurosystem personnel projections, heading inflation is set to typical 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 percent in 2027. The down modifications compared with the March forecasts, by 0.3 portion points for both 2025 and 2026, generally show lower assumptions 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 per cent in 2026 and 2027, broadly unchanged given that March.
Staff see genuine GDP growth averaging 0.9 per cent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth forecast for 2025 shows a more powerful than expected very first quarter integrated with weaker prospects for the remainder of the year. While the unpredictability surrounding trade policies is anticipated to weigh on organization investment and exports, especially in the short-term, increasing government investment in defence and infrastructure will increasingly support growth over the medium term. Higher real incomes and a robust labour market will enable households to invest more. Together with more favourable financing conditions, this need to make the economy more resistant to international shocks.
In the context of high uncertainty, personnel likewise examined a few of the systems by which various trade policies might affect development and inflation under some alternative illustrative scenarios. These scenarios will be published with the staff projections on our website. Under this circumstance analysis, a further 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, growth and, to a lower extent, inflation would be higher than in the baseline projections.
Most measures 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 profits 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 up effect on financing conditions have actually reduced.
We are figured out to ensure that inflation stabilises sustainably at our 2 percent medium-term target. Especially in current conditions of remarkable uncertainty, we will follow a data-dependent and meeting-by-meeting method to identifying the proper monetary policy stance. Our interest rate decisions will be based upon our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.
The choices taken today are set out in a press release offered on our website.
I will now outline in more detail how we see the economy and inflation developing and will then discuss our assessment of financial and monetary conditions.
Economic activity
The economy grew by 0.3 per cent in the first quarter of 2025, according to Eurostat ´ s flash estimate. Unemployment, at 6.2 percent in April, is at its lowest level because the launch of the euro, and work grew by 0.3 percent in the very first quarter of the year, according to the flash price quote.
In line with the personnel forecasts, study data point total to some weaker potential customers in the near term. While production has actually reinforced, partly because trade has been advanced in anticipation of greater tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for firms to export. High uncertainty is anticipated to weigh on financial investment.
real-markt.de
At the same time, several aspects are keeping the economy resistant and should support growth 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 interest rate cuts, ought to all help customers and firms hold up against the fallout from an unstable international environment. Recently announced measures to step up defence and infrastructure financial investment need to also reinforce development.
In the present geopolitical environment, it is even more urgent for fiscal and structural policies to make the euro location economy more efficient, competitive and resilient. The European Commission ´ s Competitiveness Compass offers a concrete roadmap for action, and its proposals, including on simplification, need to be promptly adopted. This includes finishing the cost savings and financial investment union, following a clear and enthusiastic timetable. It is also important to rapidly develop the legislative framework to prepare the ground for the potential intro of a digital euro. Governments need to make sure sustainable public finances in line with the EU ´ s economic governance framework, while prioritising essential growth-enhancing structural reforms and strategic financial investment.
Inflation
Annual inflation declined to 1.9 per cent in May, from 2.2 percent in April, according to Eurostat ´ s flash quote. Energy price inflation stayed at -3.6 per cent. Food rate inflation increased to 3.3 per cent, from 3.0 percent the month previously. Goods inflation was unchanged at 0.6 percent, while services inflation dropped to 3.2 percent, from 4.0 per cent in April. Services inflation had actually leapt in April generally due to the fact that costs 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 gradually moderating, as suggested by inbound information on negotiated incomes and offered nation information on payment per staff member. The ECB ´ s wage tracker indicate a more easing of negotiated wage growth in 2025, while the personnel forecasts see wage growth falling to listed 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 go back to target in 2027.
Short-term customer inflation expectations edged up in April, most likely showing news about trade tensions. But many measures of longer-term inflation expectations continue to stand at around 2 per cent, which supports the stabilisation of inflation around our target.
Risk assessment
Risks to financial development remain slanted to the disadvantage. An additional escalation in worldwide trade tensions and associated unpredictabilities might reduce euro location growth by dampening exports and dragging down financial investment and usage. A deterioration in financial market sentiment could cause tighter funding conditions and greater danger aversion, and confirm and families less happy to invest and take in. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the tragic conflict in the Middle East, remain a significant source of unpredictability. By contrast, if trade and geopolitical stress were dealt with quickly, this could lift belief and spur activity. An additional increase in defence and facilities spending, together with productivity-enhancing reforms, would likewise include to development.
The outlook for euro area inflation is more unsure than normal, as an outcome of the unstable global trade policy environment. Falling energy rates and a more powerful euro could put more down pressure on inflation. This could be strengthened if greater tariffs caused lower demand for euro area exports and to countries with overcapacity rerouting their exports to the euro location. Trade tensions might cause higher volatility and danger aversion in monetary markets, which would weigh on domestic need and would thus likewise lower inflation. By contrast, a fragmentation of global supply chains could raise inflation by pressing up import costs and contributing to capacity restrictions in the domestic economy. An increase in defence and infrastructure costs could likewise raise inflation over the medium term. Extreme weather condition events, and the unfolding climate crisis more broadly, might drive up food costs by more than anticipated.
Financial and financial conditions
Risk-free rate of interest have actually stayed broadly the same given that our last meeting. Equity costs have increased, and corporate bond spreads have narrowed, in reaction to more favorable news about worldwide trade policies and the enhancement in international danger sentiment.
Our previous interest rate cuts continue to make business borrowing less costly. The typical rates of interest on brand-new loans to companies decreased to 3.8 per cent in April, from 3.9 percent in March. The expense of providing market-based financial obligation was the same 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 business bond issuance was controlled. The average interest rate on brand-new mortgages remained at 3. 3 per cent in April, while growth in mortgage lending increased to 1.9 per cent.
In line with our financial policy strategy, the Governing Council thoroughly assessed the links in between financial policy and financial stability. While euro location banks remain durable, broader monetary stability dangers remain raised, in particular owing to highly uncertain and unpredictable international trade policies. Macroprudential policy remains the first line of defence against the build-up of monetary vulnerabilities, enhancing durability and maintaining macroprudential area.
The Governing Council today chose to reduce the 3 key ECB rates of interest by 25 basis points. In particular, the choice to decrease the deposit center rate - the rate through which we guide the financial 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 identified 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 approach to identifying the proper monetary policy position. Our rates of interest choices will be based upon our assessment of the inflation outlook due to the inbound financial and financial information, the dynamics 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 ready to adjust all of our instruments within our mandate to ensure that inflation stabilises sustainably at our medium-term target and to maintain the smooth performance of monetary policy transmission. (Compiled by Toby Chopra)