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Interest rates may increase by 1.5 percentage points. during the quarter

Interest rates may increase by 1.5 percentage points.  during the quarter

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In October, the pace Rising prices It reached 6.8%, dynamics not seen since the first half of 2001. Although we were dealing with two increases interest ratesIn any case, it remains well below the market price (WIBOR) and below inflation. As the measure of increases came as a surprise to the market, we saw the biggest selloff in the bond market, especially in the long term, and weaker zloty in history. For now, however, the outlook for the economy remains positive.

In October, the Monetary Policy Committee surprised the market by raising the benchmark interest rate by 40 basis points to 0.5%, and in November – with its decision to raise another 75 basis points. Up to 1.25 percent These levels are still much lower than the inflation readings, which means that real interest rates are negative, but at the same time more than expected by the market, which expected increases of 15 basis points in a row. and 50 basis points. This may not be the end of the increases, as analysts expect growth inflation up to 8 percent

Market quotes from interest rate contracts show that an increase of about 1.5 percentage points is expected in the next three months. This means that the rate in March is supposed to be about 3%, and in the next twelve months – about 3.25-3.5%. At this value the cycle will end. However, the problem with forecasting is that there is no consistent communication from the MPC – says Alexander Zymirsky, fund manager, Generali Investments TFI. – The composition of the council from next year is also ambiguous – seven out of ten members will finish their term between January and March 2022. President Glapiński himself has a term of office until June, but in his case it is possible to take office for another six years. According to media information, the president intends to nominate him for the next six years.

Just before the rate hike, NBP Chairman and Monetary Policy Committee Chairman, A. Adam Glapinski, stressing that there will be no increases because inflation is the supply side. This means that it does not depend on the decision of the Council because it is caused by global factors.

Supply factors are, of course, present, such as rising energy and fuel prices. In October, the cost of private transportation fuel rose by 33.9 percent. On an annual basis, fuel – up 18.3 percent, and gas – up 16.1 percent. However, at the same time, due to the huge amounts of money that have been put into economies and purchases that have been put on hold due to the pandemic, increased consumer demand has arisen. As a result, food is also becoming more expensive (which is also partly a global phenomenon), but core inflation is also rising. data NBP It indicates that in October it reached 4.5%, which is well above the MPC target (2.5% with up and down deviations of 1 percentage point). In contrast, CPI inflation in 2022 is expected to exceed 5%, and in the first months of the year it will reach about 7-8%.

– It is clear that the society is witnessing a rise in prices and therefore there are more and more wage demands. In recent months, salaries have increased by about 8-9%. y / y and there is no indication that these dynamics will slow down significantly – mentions Alexander Zymirsky. – This is how the so-called price-wage spiral is twisted: prices are rising, so employees demand increases, increases mean higher costs for enterprises, which leads to further price increases, etc. This leads to the root causes of inflation gradually losing their relevance, as they begin to fade away on their own.

Other European countries and the United States are also suffering from high rates of inflation. As a result, central banks are raising interest rates. In the Czech Republic, between March and October, the price hike reached 125 basis points, and the Bank decided to do the same in November (to 2.75%). Hungarians, through a series of regular increases, have reached the 2.1% level.

The effect of high inflation in Poland and the opaque communication of the central bank with the market is weaken the zloty, especially against the dollar – Since the beginning of the year, the Polish currency has lost nearly 11 percent against the United States, and just over 3 percent against the euro. The strengthening of the US currency against the European currency is due to the fact that the tightening of monetary policy, that is, a reduction in bond purchases or, in the end, an increase in interest rates, is expected earlier in the United States than in the eurozone.

The other result is confusion in the bond market. Rapid and higher-than-expected increases in interest rates led to losses for bond funds in October, not only for fixed and long-term coupons, but also for short-term floating-rate coupons.

Funds had to sell securities in a relatively illiquid market, which of course deepened the declines. In October alone, more than 3 billion PLN net inflow of funds [dane dla całego rynku – red.] – says fund manager Generali Investments TFI. As a result, the bond price collapsed under the burden of supply. The longest floating coupon bond has lost 2-2.5 percent since the beginning of October. It was a massive sell off with no primary justification other than a temporary shortage of cash. Thus, they are currently very attractive securities, not only because they are sold at a huge discount, but also their interest rates are increasing systematically.

For now, the outlook for the Polish economy remains positive. In the third quarter, GDP growth was 5.1%. Q/o, clearly higher than analysts’ expectations. According to the European Commission’s forecast, it will reach 5.2 percent next year. This is mainly due to active consumption and a wage increase of about 10%. y/o

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