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Interest rates in Poland – May 2022. Monetary Policy Council meeting on May 5 – Economists’ forecasts

Interest rates in Poland - May 2022. Monetary Policy Council meeting on May 5 - Economists' forecasts

The Monetary Policy Council (MPC) will make a decision on interest rates on Thursday. Economists have no doubt that there will be another eighth straight rally. “Inflation is out of control and containing it will require continued sharp increases in interest rates” – assessed by Millennium Bank analysts.

The Monetary Policy Board raised interest rates by 100 basis points during its April meeting. The benchmark interest rate rose to 4.50%. This is the highest level since November 2012.

Economists have no doubts that the MPC will raise interest rates for the eighth time in a row.

As a rule, MPC decisions have an impact on WIBOR, which at the same time translates into the amount of loan installments. The loan interest rate consists of two components: the bank’s margin and the WIBOR ratio. Some banks use the 3M (three-month) WIBOR rate, which means that the mortgage interest rate is updated every three months from the moment the loan is disbursed. In the case of WIBOR 6M (six months), the interest rate is updated every six months.

At the same time, as previously noted by Marcin Klucznik of the Polish Economic Institute in an interview with TVN24 Biznes portal, WIBOR prices for three months at higher interest rates Over the next three months, the price of six months will be priced at a price hike over the next six months. Which means that both rates may now be much higher than the reference rate due to the expectation of further increases in interest rates.

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WIBOR 3M is currently at 6.05 percent, and WIBOR 6M is at 6.25 percent. For comparison, on April 5 this year. The level was 4.90 percent, respectively. and 5.15 percent.

Due to the ongoing cycle of increasing interest rates, borrowers should expect another increase in loan installments. According to data from the Polish National Bank, the average interest rate on newly granted mortgages in March rose to 6.4 percent. from 5.7 percent in February. The increases also affected borrowers who made their commitments earlier.

PAP / Maciej Zieliński

How high will interest rates go?

Economists at PKO BP expect the Monetary Policy Committee to raise interest rates by 100 basis points for the second time in a row, “in response to another larger-than-expected increase in current inflation.” According to preliminary data of the Central Bureau of Statistics, inflation in April 2022 It was 12.3 per cent. on an annual basis and 2.0 per cent. From month to month.

“In our view, the current function of the NBP reaction means that interest rates will be raised as long as current inflation continues to rise (i.e. probably until July). Most likely, similar to April, given the somewhat succinct statement after at the meeting, Only the NBP Chairman’s conference will shed more light on the motivations board and allow a potential verification of expectations regarding the further path of interest rates, PKO BP economists wrote in a report on Monday. The press conference of NBP Chairman and Monetary Policy Committee Chairman Adam Glapiński will take place on Friday at It’s 15.00.

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Economists at MBank cited a 100bp rate hike as the base scenario. “At the moment, just the surprise with inflation and the good March data suggests that the MPC doesn’t have to divide a hair (yet) by four. The base case scenario is a 100bp hike” – we read in a comment on Monday.

“Following the recent data, which showed stronger-than-expected economic activity at the end of the first quarter and another big inflation surprise in April (12.3% y/y!), we are betting on an increase in the NBP reference rate in May by another 100 basis points, to 5.50 percent. – Economists at Bank Santander Polska wrote in an analysis on Friday.

As they explain, “Decisions in the coming months will still be largely related to the data coming out of the economy: on the one hand, how much inflation will continue to rise (because it will rise, it is an inevitable outcome), and on the other hand, how fast and how much economic growth will slow (that It’s also inevitable). “As of today, our base case scenario is to assume that the NBP rate could reach at least 6.5% before signs of a significant slowdown in the economy, which are seen in the data, prevent the MPC from tightening further,” the economists wrote.

‘Inflation is out of control’

ING Bank Śląski experts emphasized that “inflation remains the biggest problem for Poland’s macroeconomics in the short term”. “The tense situation in the labor market and the well-established economic situation at the beginning of the year allow the Monetary Policy Board to focus its efforts on combating price increases. Due to the geopolitical situation (changes in sources of energy supply in Poland and Europe), the economic slowdown in the following quarters may not necessarily be accompanied by a noticeable decrease in Inflation ”- according to their assessment.

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“We have very negative real interest rates, which indicates that the scope for monetary tightening is still large. We expect the MPC in May to raise NBP rates by 100 basis points, and this year we can see the NBP rate at 7.5%. The level. Rates shifted Interest to 7.5-10 per cent. Double-digit interest rates in Poland are no longer a theoretical topic ”- said economists at ING Bank Śląski.

In the opinion of Millennium Bank analysts, “inflation readings published in recent months indicate that inflation is out of control and that containing it will require continued sharp increases in interest rates.” “In such circumstances, the monetary policy board is likely to raise interest rates in May by another 100 basis points, and the target reference rate in this tightening cycle may exceed 7 percent.” – wrote in a comment.

Reacting to Friday’s inflation data, BNP Paribas economists also said they expect a 100 basis point rate hike next Thursday. “And in the end, the reference rate is at the 8 percent level.” – They added.

Main image source: Piotr Nowak / PAP

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