Poland central bank sees CPI within target through 2028 in report that predates Iran war

WARSAW, March 6 (Reuters) - Poland's central bank said inflation is likely to remain within its target range until the end of 2028 in a report released Friday, but based on data that predates the start of the conflict in the Middle East.

The National Bank of Poland projected in its March forecasts that inflation will reach 2.3% this year, 2.4% in 2027 and 2.3% in 2028 - around the middle of the central bank's 1.5%-3.5% inflation target - based on data available until February 19.

Growth will slow slightly to 3.9% this year, from 4.0% in 2025, the report said.

The U.S. and Israel have bombarded Iran since the weekend, killing Supreme Leader Ali Khamenei in the opening salvos of the conflict. Iran has responded with strikes around the region and the closure of the Strait of Hormuz, which handles roughly one-fifth of the world's daily oil supply.

Crude oil is set for its sharpest weekly gain in four years, stoking fears of quicker inflation worldwide. O/R

The war in the Middle East means there is less space for rate cuts in Poland, central bank official Ludwik Kotecki told TOK FM radio on Friday.

A day earlier, central bank governor Adam Glapinski said that the war poses the biggest risk for inflation in Poland, but if the situation calms down fairly quickly, the Polish Monetary Policy Council could cut interest rates further.

Swaps traders currently expect three quarter-point reductions in the key rate to 3% by year-end, according to LSEG data.

In Friday's report, the central bank predicted economic growth will be driven by continued robust domestic consumption.

An acceleration in investment is also expected over the three-year forecast horizon, driven by increased spending on energy transformation, the construction of railway infrastructure and a new airport, and military equipment purchases.

The expected peak absorption of European Union funds will also be a key driven this year, but "over the longer projection horizon, the reduced use of these funds will translate into a slowdown in investment and economic activity," the report said.

A factor that could significantly affect the path of energy prices and inflation in 2028 is the planned expansion of the EU’s CO₂ emissions trading system to new sectors, the report said, although it is still unclear what the price levels will be.