* May be another 25 bps cut as early as Sept. 30
* Inflation to hover below target midpoint until mid-2015
* Romania recorded capital inflows from Ukraine crisis
* Black Sea state eyes unusually large cereal crops
By Radu Marinas
BUCHAREST, Aug 4 Romania's central bank cut its
benchmark interest rate to a record low of 3.25
percent on Monday and hinted it could cut further as food prices
The bank began cutting rates last year, later than its
emerging European peers due to stubborn inflation. But with
harvests likely to prove exceptional, inflation hit a record low
0.7 percent in June and investors began to see scope for more
Romania, which targets annual inflation of 1.5-3.5 percent
this year and next, is forecast to play a pivotal role on the
international grains export market in the 2014/15 season.
The central bank said it revised down annual inflation
forecasts for this year and 2015 to 2.2 percent and 3 percent,
from a previous 3.3 percent for both years.
"The outlook for the annual inflation rate (is set) to run
at markedly lower readings than previously forecasted, i.e.
below the midpoint ... until mid-2015."
Governor Mugur Isarescu told reporters inflation might allow
more easing but further decisions would need to take greater
account of the external environment.
International investors are anticipating moves by major
central banks, notably the U.S. Federal Reserve, to start
letting interest rates edge up again after years of keeping them
"There may be further (easing) space but, this time, we'd be
forced to take decisions taking into account the external
environment to a greater extent," Isarescu said.
But such factors could include capital flows into Romania
that some in the market attribute to investors moving money in
from Russia - strengthening the leu - as sanctions over
separatist violence in Ukraine start to bite.
"Starting February-March towards July there have been quite
important capital inflows," Isarescu said.
A ONE-OFF CUT?
Until recently, the market had expected rates to stay flat
at 3.50 percent.
But "inflation has fallen much faster than expected; we
revised our inflation forecast downward to 2.3 percent from 3
percent for the year-end," said Ionut Dumitru, chief economist
at Raiffeisen Bank in Bucharest.
The central bank saw inflation risks stemming chiefly from
external sources, largely the risk of more volatile capital
flows in Romania if investors develop greater risk aversion to
Capital Economics said that "with inflation likely to rise
over the coming months, we think today's move was probably a
one-off rather than the start of a fresh easing cycle."
Two local analysts said fresh easing was possible.
"The biggest surprise from today's meeting was the revision
of the inflation forecasts. This coupled with the downward
revision of average inflation in 2015 suggests more rate cuts
are likely," said Mihai Patrulescu of UniCredit Tiriac Bank.
Raiffeisen's Dumitru said he now expects the bank to deliver
another 25 basis point rate cut at its next meeting on Sept. 30.
The leu was only marginally easier at 4.4329
against the euro after the central bank moves.
(Editing by Ruth Pitchford)