BUCHAREST, Oct 10 (Reuters) - Romania's annual inflation jumped to 5.3 percent on the year in September, above the central bank's target and reducing its scope to cut interest rates to help a languishing economy.
Central banks elsewhere in eastern Europe are in easing mode as market rallies driven by U.S. and European stimulus leave them more scope to tackle disappointing domestic demand.
But a Romanian easing cycle stopped in May after four consecutive quarter point cuts, as the start of a bitter political crisis heightened uncertainty and sent the leu currency to record lows. Analysts expect rates to stay on hold at 5.25 percent well into next year.
Inflation quickened from August's 3.9 percent due to a poor harvest, weak currency and energy price hikes and most analysts expect it to remain higher than the central bank's targeted band of 2-4 percent at the end of this year.
Other data showed Romania's adjusted industrial output
fell 1.1 percent on the month in August and the trade deficit widened 4 percent to 6.3 billion euros on the year in the first eight months.
MARKET REACTION
The Romanian leu was a touch higher after the data and was bid at 4.5 65 per euro, u p 0 .2 percent on the day.
MARKET FORECAST
A median forecast of 14 analysts polled by Reuters earlier this month expected annual inflation at 4.7 percent in August, and a 0.5 percent advance on the month.
KEY FIGURES CPI (pct change) SEPT AUG yr/yr 5.3 3.9 mth/mth 1.2 0.5 INDUSTRIAL OUTPUT AUG JULY change mth/mth (pct) -1.1 1.1 change yr/yr (pct) -1.1 1.9 TRADE DEFICIT JAN-AUG JAN-JULY bln euros 6.307 5.327 pct change (yr/yr) 4.0 0.8 IMPORTS (bln euros) 35.960 31.417 EXPORTS (bln euros) 29.653 26.090 ANALYST COMMENTS: FLORENTINA COZMANCA, SENIOR ECONOMIST AT RBS ROMANIA
"Inflation surprised again in September, posing a monthly rate of 1.2 percent - more than two times higher than we and the market had expected."
"The main driver of this high inflation were food prices that rose by 2.3 percent month-on-month, this being the highest monthly increase since January 2003. The increase of food prices generated 0.84 percentage points of the total inflation of 1.2 percent."
"Although inflation surprised the market, I continue to believe that the central bank with not react to the supply shock by raising the key rate."
"Instead, it will keep its prudent stance and maintain the key rate at the current level."
GEORGIANA CONSTANTINESCU, ECONOMIST, CREDIT EUROPE BANK
"Inflation surprised on the upside and the monthly dynamics is significant. The impact mainly comes from imports, but also from a weaker food and vegetables output."
"The evolution of the exchange rate and hikes in utility prices can be seen in food prices. Since we might see other hikes in such prices, inflation could be over 4.5 percent at the end of the year."
"As in July, the evolution of August industrial output can be attributed to seasonal factors."
"Exports' dynamics is of a smaller magnitude than that of imports. If the trend persists we will see a rise in trade deficit, which is not good news."
"I expect economic growth to be around 1 percent this year, depending on farming data and the evolution of industrial output in the fourth quarter."
TRADER WITH A FOREIGN BANK IN BUCHAREST
"So, we now see negative real interest rates ... this is negative for the leu, this is negative for the bonds. I do not expect a rate hike before the December parliament election."
"Plus industrial production contraction is very negative for the leu so the central bank now has a dilemma: low growth if any ... and high inflation."
VLAD MUSCALU, ECONOMIST AT ING BANK IN BUCHAREST
"It seems that we underestimated the inflation pick up. It is probable to see inflation at around 6 percent at the end of the year. Rate hikes now become more probable again but, maybe, there won't be aggressive moves."
"The first rate hike will probaly be in the first quarter of 2013."
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(Reporting by Ioana Patran and Radu Marinas; Editing by Sam Cage)
((sam.cage@thomsonreuters.com)(+40)(0)(21 305 5266)(Reuters Messaging: sam.cage.thomsonreuters.com@reuters.net))
Keywords: ROMANIA ECONOMY