Romania's central bank cut its policy rate by 25 basis points to 5.0 percent, as expected, to boost economic activity and ensure medium-term price stability.
It is the first rate cut this year by the National Bank of Romania (NBR), which previously cut its rate in March 2012. The central bank also cut the rate on its Lombard facility by 25 basis points to 8.0 percent and the deposit rate to 2.0 percent from 2.25 percent.
The NBP expects inflation to ease further in July and hit the target range in September/October. The NBR targets inflation of 2.5 percent, plus/minus 1.0 percentage point.
"The decisions convey a positive signal to the banking system, the business community and households, by prompting a gradually downward trend in domestic currency lending costs and fostering economic activity," the NBR said.
"Such a monetary policy configuration is further aimed at achieving the objective of ensuring medium-term price stability while preserving financial stability and cushioning the adverse impact of domestic and external factors on the recovery of the Romanian economy."
The central bank added that the major risks to the short-term inflation outlook was the volatility of capital flows, given the "current global picture" and structural rigidities in Romania's economy.
The central bank said the negative output gap in the economy had persisted and annual consumer price inflation rose marginally to 5.32 percent in May from 5.25 percent in March.
Based on the EU-harmonised inflation measure, May inflation was 4.38 percent, down from 4.45 percent in March.
Romania's Gross Domestic Product rose to an annual 2.2 percent in the first quarter from 1.1 percent in the fourth quarter of 2012 due to higher manufacturing output.
The central banks said the leu currency had posted wider wings due to the "heightened volatility of investors' risk appetite, as well as to the persistence of uncertainty surrounding economic activity in Europe and elsewhere."