TEXT-Lagarde's Statement After ECB Policy Meeting
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
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Good afternoon, the Vice-President and I welcome you to our interview.
The Governing Council today decided to reduce the three key ECB rate of interest by 25 basis points. In specific, the choice to decrease the deposit center rate - the rate through which we steer the financial policy stance - is based on 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 two per cent medium-term target. In the standard of the new Eurosystem personnel forecasts, headline inflation is set to average 2.0 per cent in 2025, 1.6 per cent in 2026 and 2.0 per cent in 2027. The down revisions compared with the March forecasts, by 0.3 percentage points for both 2025 and 2026, primarily show lower assumptions for energy rates and a stronger euro. Staff anticipate inflation omitting energy and food to typical 2.4 percent in 2025 and 1.9 per cent in 2026 and 2027, broadly unchanged given that March.
Staff see genuine GDP growth averaging 0.9 percent in 2025, 1.1 per cent in 2026 and 1.3 percent in 2027. The unrevised growth projection for 2025 shows a more powerful than anticipated first quarter integrated with weaker potential customers for the rest of the year. While the unpredictability surrounding trade policies is expected to weigh on company financial investment and exports, particularly in the short-term, increasing government financial investment in defence and facilities will increasingly support development over the medium term. Higher genuine incomes and a robust labour market will enable homes to spend more. Together with more beneficial funding conditions, this must make the economy more resilient to global shocks.
In the context of high uncertainty, personnel likewise evaluated a few of the mechanisms by which different trade policies could affect development and inflation under some alternative illustrative scenarios. These scenarios will be published with the staff forecasts on our website. Under this circumstance analysis, a further escalation of trade stress over the coming months would lead to growth and inflation being listed below the baseline forecasts. By contrast, if trade tensions were resolved with a benign outcome, growth and, to a lesser extent, inflation would be higher than in the standard 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 elevated but continues to moderate visibly, and revenues are partly buffering its effect on inflation. The concerns that increased uncertainty and an unpredictable market response to the trade tensions in April would have a tightening influence on financing conditions have actually eased.
We are identified to ensure 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 determining the suitable monetary policy stance. Our rates of interest choices will be based on our assessment of the inflation outlook in light of the incoming financial and monetary data, the dynamics of underlying inflation and the strength of financial policy transmission. We are not pre-committing to a specific rate course.
The decisions taken today are set out in a press release available on our site.
I will now detail in more detail how we see the economy and inflation developing and will then describe our evaluation of monetary 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 percent in April, is at its lowest level considering that the launch of the euro, and work grew by 0.3 per cent in the first quarter of the year, according to the flash quote.
In line with the personnel forecasts, survey data point general to some weaker potential customers in the near term. While manufacturing has actually reinforced, partly since trade has actually been brought forward in anticipation of higher tariffs, the more locally oriented services sector is slowing. Higher tariffs and a stronger euro are anticipated to make it harder for companies to export. High uncertainty is anticipated to weigh on financial investment.
At the same time, numerous elements are keeping the economy durable and needs to support development over the medium term. A strong labour market, increasing genuine earnings, robust economic sector balance sheets and simpler financing conditions, in part due to the fact that of our previous rates of interest cuts, ought to all help customers and companies endure the fallout from a volatile international environment. Recently revealed procedures to step up defence and facilities financial investment ought to likewise reinforce development.
In the present geopolitical environment, it is much more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and durable. The European Commission ´ s Competitiveness Compass supplies a concrete roadmap for action, and its propositions, consisting of on simplification, must be promptly adopted. This includes finishing the cost savings and investment union, following a clear and ambitious timetable. It is also important to quickly develop the legal framework to prepare the ground for the potential introduction of a digital euro. Governments ought to guarantee sustainable public finances in line with the EU ´ s financial governance structure, while prioritising essential growth-enhancing structural reforms and tactical investment.
Inflation
Annual inflation decreased to 1.9 per cent in May, from 2.2 per cent in April, according to Eurostat ´ s flash estimate. Energy cost inflation remained at -3.6 percent. Food price inflation increased to 3.3 per cent, from 3.0 percent the month before. Goods inflation was the same at 0.6 per cent, while services inflation dropped to 3.2 per cent, from 4.0 percent in April. Services inflation had actually leapt in April primarily since rates for travel services around the Easter holidays went up by more than expected.
Most indicators of underlying inflation suggest that inflation will stabilise sustainably at our 2 percent medium-term target. Labour expenses are gradually moderating, as shown by inbound data on worked out earnings and offered nation information on compensation per staff member. The ECB ´ s wage tracker points to a further easing of negotiated wage growth in 2025, while the personnel projections see wage development being up to below 3 percent 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 expected to go back to target in 2027.
Short-term consumer inflation expectations edged up in April, likely reflecting news about trade tensions. But many 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 development remain tilted to the disadvantage. A further escalation in global trade tensions and associated uncertainties might reduce euro location development by moistening exports and dragging down financial investment and consumption. A wear and tear in financial market belief might result in tighter funding conditions and higher threat aversion, and make companies and families less going to invest and consume. Geopolitical stress, such as Russia ´ s unjustified war versus Ukraine and the tragic conflict in the Middle East, stay a major source of unpredictability. By contrast, if trade and geopolitical stress were solved quickly, this might lift sentiment and spur activity. A more boost in defence and infrastructure costs, together with productivity-enhancing reforms, would likewise include to growth.
The outlook for euro area inflation is more uncertain than normal, as an outcome of the unstable global trade policy environment. Falling energy rates and a stronger euro might put additional down pressure on inflation. This might be reinforced if greater tariffs caused lower demand for euro area exports and to nations with overcapacity rerouting their exports to the euro location. Trade stress could result in higher volatility and threat aversion in financial markets, which would weigh on domestic need and would thereby also lower inflation. By contrast, a fragmentation of international supply chains could raise inflation by pressing up import costs and adding to capacity restrictions in the domestic economy. An increase in defence and infrastructure spending might also raise inflation over the medium term. Extreme weather occasions, and the unfolding environment crisis more broadly, might drive up food costs by more than anticipated.
Financial and monetary conditions
Risk-free interest rates have actually stayed broadly the same since our last conference. Equity prices have actually risen, and corporate bond spreads have narrowed, in reaction to more favorable news about global trade policies and the improvement in worldwide danger belief.
Our previous rates of interest cuts continue to make corporate borrowing less costly. The average rate of interest on brand-new loans to companies declined to 3.8 per cent in April, from 3.9 per cent in March. The cost of providing market-based debt was unchanged at 3.7 per cent. Bank lending to companies continued to strengthen gradually, growing by an annual rate of 2.6 percent in April after 2.4 percent in March, while business bond issuance was controlled. The average interest rate on brand-new mortgages stayed at 3. 3 percent in April, while development in mortgage financing increased to 1.9 per cent.
In line with our monetary policy strategy, the Governing Council completely examined the links in between monetary policy and financial stability. While euro area banks stay durable, wider monetary stability threats stay raised, in specific owing to extremely unpredictable and unpredictable international trade policies. Macroprudential policy remains the very first line of defence versus the accumulation of monetary vulnerabilities, enhancing resilience and maintaining macroprudential space.
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The Governing Council today chose to reduce the 3 essential ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate - the rate through which we guide the monetary policy position - is based on our updated evaluation 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 2 per cent medium-term target. Especially in existing conditions of extraordinary uncertainty, we will follow a data-dependent and meeting-by-meeting technique to identifying the suitable monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook due to the inbound 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 path.
In any case, we to change all of our instruments within our mandate to make sure that inflation stabilises sustainably at our medium-term target and to maintain the smooth performance of financial policy transmission. (Compiled by Toby Chopra)