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 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 invite you to our interview.
The Governing Council today decided to lower 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 monetary policy position - is based upon our upgraded evaluation of the inflation outlook, the characteristics of underlying inflation and the strength of financial policy transmission.
Inflation is presently at around our two percent medium-term target. In the standard of the brand-new Eurosystem staff forecasts, headline inflation is set to average 2.0 percent in 2025, 1.6 percent in 2026 and 2.0 percent in 2027. The down revisions compared with the March forecasts, by 0.3 percentage points for both 2025 and 2026, generally reflect lower presumptions for energy rates and a stronger euro. Staff expect inflation excluding energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly the same because March.
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Staff see genuine GDP growth balancing 0.9 percent in 2025, 1.1 percent in 2026 and 1.3 per cent in 2027. The unrevised growth projection for 2025 reflects a more powerful than expected very first quarter integrated with weaker potential customers for the rest of the year. While the unpredictability surrounding trade policies is anticipated to weigh on business financial investment and exports, particularly in the brief term, increasing government investment in defence and infrastructure will progressively support development over the medium term. Higher real incomes and a robust labour market will enable families to spend more. Together with more favourable financing conditions, this must make the economy more resilient to international shocks.
In the context of high uncertainty, staff also evaluated some of the mechanisms by which different trade policies might affect development and inflation under some alternative illustrative circumstances. These situations will be published with the staff forecasts on our website. Under this situation analysis, a further escalation of trade tensions over the coming months would lead to development and inflation being listed below the standard projections. By contrast, if trade stress were solved with a benign outcome, development and, to a lesser level, inflation would be greater than in the baseline forecasts.
Most measures of underlying inflation recommend that inflation will settle at around our two per cent medium-term target on a sustained basis. Wage growth is still raised but continues to moderate visibly, and profits are partially buffering its effect on inflation. The concerns that increased unpredictability and an action 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 2 percent 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 suitable financial policy stance. Our interest rate decisions will be based on our evaluation of the inflation outlook due to the incoming financial and monetary information, the characteristics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a particular rate course.
The decisions taken today are set out in a news release offered on our site.
I will now outline in more information how we see the economy and inflation establishing and will then explain our evaluation of financial and financial conditions.
Economic activity
The economy grew by 0.3 percent in the very first quarter of 2025, according to Eurostat ´ s flash quote. Unemployment, at 6.2 per cent in April, is at its most affordable level because the launch of the euro, and employment grew by 0.3 percent in the very first quarter of the year, according to the flash quote.
In line with the personnel projections, survey information point general to some weaker potential customers in the near term. While manufacturing has enhanced, partially since trade has been advanced in anticipation of higher tariffs, the more domestically oriented services sector is slowing. Higher tariffs and a more powerful euro are anticipated to make it harder for companies to export. High uncertainty is expected to weigh on financial investment.
At the exact same time, numerous factors are keeping the economy resilient and should support development over the medium term. A strong labour market, increasing genuine earnings, robust economic sector balance sheets and much easier funding conditions, in part due to the fact that of our past rate of interest cuts, must all assist customers and companies hold up against the fallout from a volatile international environment. Recently announced steps to step up defence and facilities investment should also bolster development.
In the present geopolitical environment, it is a lot more urgent for financial and structural policies to make the euro area economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass provides a concrete roadmap for action, and its propositions, including on simplification, must be promptly embraced. This consists of completing the savings and investment union, following a clear and enthusiastic schedule. It is likewise crucial to rapidly develop the legislative framework to prepare the ground for the possible intro of a digital euro. Governments must make sure sustainable public finances in line with the EU ´ s economic governance framework, while prioritising essential 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 price quote. Energy cost inflation remained at -3.6 per cent. Food rate inflation rose to 3.3 percent, from 3.0 per cent the month previously. Goods inflation was the same at 0.6 percent, while services inflation dropped to 3.2 per cent, from 4.0 percent in April. Services inflation had actually leapt in April primarily since costs for travel services around the Easter vacations increased by more than expected.
Most indications of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour costs are slowly moderating, as suggested by incoming data on negotiated earnings and readily available country data on compensation per staff member. The ECB ´ s wage tracker points to a more easing of negotiated wage growth in 2025, while the personnel forecasts see wage growth being up to listed below 3 per cent in 2026 and 2027. While lower energy rates 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 consumer inflation expectations edged up in April, likely reflecting news about trade stress. 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 assessment
Risks to financial growth stay slanted to the drawback. A more escalation in international trade tensions and associated uncertainties might reduce euro location development by dampening exports and dragging down investment and usage. A deterioration in financial market sentiment might cause tighter funding conditions and greater danger aversion, and confirm and families less happy to invest and consume. Geopolitical tensions, such as Russia ´ s unjustified war against Ukraine and the terrible conflict in the Middle East, stay a significant source of uncertainty. By contrast, if trade and geopolitical stress were resolved promptly, this might raise sentiment and spur activity. A further boost in defence and infrastructure spending, together with productivity-enhancing reforms, would also contribute to growth.
The outlook for euro area inflation is more unpredictable than typical, as a result of the unstable international trade policy environment. Falling energy costs and a more powerful euro could put additional downward pressure on inflation. This could be strengthened if higher tariffs caused lower need for euro location exports and to nations with overcapacity rerouting their exports to the euro location. Trade tensions could result in greater volatility and threat hostility in monetary markets, which would weigh on domestic demand and would thereby likewise lower inflation. By contrast, a fragmentation of worldwide supply chains could raise inflation by rising import costs and including to capability restraints in the domestic economy. A boost in defence and facilities spending might also raise inflation over the medium term. Extreme weather occasions, and the unfolding environment crisis more broadly, might increase food costs by more than expected.
Financial and monetary conditions
Risk-free rates of interest have stayed broadly unchanged since our last meeting. Equity prices have risen, and business bond spreads have actually narrowed, in reaction to more favorable news about worldwide trade policies and the improvement in global risk sentiment.
Our previous interest rate cuts continue to make business borrowing less costly. The typical interest rate on new loans to companies decreased to 3.8 per cent in April, from 3.9 percent in March. The cost of issuing market-based debt was unchanged at 3.7 per cent. Bank lending to firms continued to strengthen slowly, growing by an annual rate of 2.6 per cent in April after 2.4 percent in March, while corporate 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 percent.
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In line with our monetary policy technique, the Governing Council completely evaluated the links in between monetary policy and monetary stability. While euro area banks stay durable, broader financial stability risks remain raised, in specific owing to highly unsure and unstable worldwide trade policies. Macroprudential policy stays the very first line of defence versus the build-up of financial vulnerabilities, enhancing resilience and maintaining macroprudential area.
The Governing Council today decided to decrease the three essential ECB interest rates by 25 basis points. In particular, the choice to lower the deposit facility rate - the rate through which we steer the financial policy position - is based upon our updated evaluation of the inflation outlook, the dynamics 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 existing conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to figuring out the proper financial policy stance. Our rates of interest choices will be based upon our evaluation of the inflation outlook due to the inbound economic and financial data, the characteristics 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 adjust all of our instruments within our mandate to guarantee that inflation stabilises sustainably at our medium-term target and to maintain the smooth functioning of monetary policy transmission. (Compiled by Toby Chopra)
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TEXT Lagarde's Statement After ECB Policy Meeting
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