UPDATE 1-Romania central bank cuts 2013 inflation forecast

Wed May 8, 2013 4:40am EDT

Related Topics

* Sees 2013 inflation at 3.2 pct, from previous 3.5

* Has said will soon start rate cutting cycle

BUCHAREST May 8 (Reuters) - Romania's central bank cut its 2013 inflation forecast on Wednesday and paved the way for interest rate cuts in the second half of the year to help a struggling economy.

Persistently high inflation, at 5.3 percent in March, has prevented Romania's central bank from following its neighbours in cutting rates to help the European Union's second-poorest economy, which grew 0.7 percent last year.

The bank last week left its main interest rate on hold at a record low 5.25 percent for a ninth successive meeting but said it would soon start to lower borrowing costs as stubbornly above-target inflation eased.

"We have relatively good news about price developments," Governor Mugur Isarescu told reporters. "We now see inflation on a downward path, one more pronounced that previously expected."

The central bank now expects 2013 inflation at 3.2 percent, within its 1.5-3.5 percent band and compared with a previous forecast of 3.5 percent. It sees inflation of 3.3 percent in 2014, from a previous 3.2 percent.

Bucharest is seeking to complete a 5 billion euro International Monetary Fund agreement in June and though it has not drawn on the funds, the deal has propped up the leu currency and helped keep government borrowing costs in check.

Analysts now expect rate cuts in the second half and some say the first easing could come at the central bank's next scheduled meeting on July 1.

The leu's 3 percent rise against the euro this year - which Isarescu said was "pronounced but not exaggerated" - may also give the central bank, which targets inflation in a band of 1.5-3.5 percent, space to ease policy.

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