EU to prime boom

The growth prediction follows disappointing figures in the first half of the year. However, the bank is also warning that high oil prices, weak domestic demand and risk around the forthcoming elections could prevent a sharp investment growth in the second half of 2005.

"Lower than expected investment growth in the first half may have been due to the low rate of growth of consumer demand, delays in ... decisions on EU aid and uncertainty over the policy of the next government," the bank said in its quarterly report.

"In future quarters we can expect rising absorption of EU funds. This should lead to an acceleration of growth in investment outlays," it said.

Polish gross domestic product rose by 2.8 percent in the second quarter, subdued by an annual fall in domestic demand and a weaker-than-expected rise in investment, which helped provoke the bank's fifth interest-rate cut in six months last week.

The bank has cut the rate 200 basis points since March to bring its main borrowing rates to an all-time low of 4.5 percent.

The bank publishes the inflation report along with its projection of the path of inflation over coming quarters.

The projection showed that through 2007 there was a "substantially" higher chance of price growth staying below its 2.5 target than above.

The bank also maintained its easing bias, meaning rate cuts are more likely than increases, and prompting markets to price in further cuts, perhaps as soon as next month, when the bank meets only days after Poland's general election.

Previously unpublished voting records for the bank's policy council in the report showed it was split 6-4 over its switch to the easing bias, from the previous neutral setting, in June.

In May the council rejected moving to an easing bias, with bank president Leszek Balcerowicz's tie-breaking vote deciding the 5-5 split. (Reuters)