By Justyna Pawlak
BUCHAREST, May 12 (Reuters) - Inflation eased in Romania and the Czech Republic in April, statisticians said on Tuesday, adding to a host of indicators that underscore the depth of economic woes afflicting eastern Europe.
The region was hit hard when international cash flows dried up and consumers reined in spending in recent months, which led to widespread production stoppages and layoffs in key industries.
Concerns over economic imbalances in some countries in the region, particularly Romania, have heightened investors' concerns over future prospects.
Tuesday's figures showed dwindling demand both on the domestic and export markets helped bring Romania's inflation down to 6.5 percent on the year in April, from 6.7 percent in March.
"Underlying inflationary pressures (in central and eastern Europe) are dissipating," Commerzbank Dresdner Kleinwort wrote in a research note.
But declines notwithstanding, a weak leu currency is expected to maintain upward pressure on prices, and keep the indicator above the central bank's 2.5-4.5 percent target for December.
"We maintain our forecast for 7.9 percent at the end of the year, much higher than what the central bank sees, as we expect the leu to weaken and offset the slowdown in demand," said Vlad Muscalu from ING Bank in Bucharest.
The data cemented expectations of further cuts in Romanian interest rates, which together with Hungary's borrowing costs, are the highest in the European Union, at 9.50 percent.
However, analysts stressed any easing will depend on relative stability of the leu, which most say is the crucial factor for the inflation outlook.
On Tuesday, the leu traded a touch lower on the day, in line with regional moves, but was nearly 5 percent stronger from January's record low of 4.3530 per euro.
HUNGARY BATTLES OWN PROBLEMS
In the Czech Republic, inflation slid to a below-forecast 1.8 percent versus a year earlier from 2.3 percent in March, hitting its lowest point since February 2007, while industrial output plunged 17 percent in March.
The jobless rate rose to 7.9 percent in April.
Analysts were cautious regarding any potential impact of the data on interest rates, saying most of the expected easing had already been ordered.
"Our feeling from last week's (central bank) press conference is that they are keeping the door open for the possibility of another interest rate cut and the data released today keeps the door open as well," said Radomir Jac from Generali PPF Asset Management.
"Having said that, our baseline scenario expects stability of the Czech National Bank's interest rates for the rest of the year but the risk for such a call is on the downside."
The Czech central bank has cut the main repo rate by 225 basis points since last August to 1.50 percent, a record low. Meanwhile in Hungary, annual price growth unexpectedly surged in April due to strong fuel, drugs and durable good prices, hitting 3.4 percent from 2.9 percent in March. However, services inflation, a figure keenly watched by the central bank when setting interest rate, was relatively benign.
"The Czech Republic has witnessed one of the most clear-cut disinflationary trends among regional peers," Commerzbank said, adding that April's jump in Hungarian inflation was "modest" compared with longer-term disinflationary trends. (Reporting by Reuters bureaus; writing by Justyna Pawlak; editing by Stephen Nisbet)