On Wednesday, the Monetary Policy Council will decide on interest rates for the last time this year. According to the forecasts of most economists, interest rates will remain at their current levels after the December meeting. HRE Investments analysts pointed out in a Tuesday communiqué that “even the market does not expect an increase in interest rates in December”.
In October 2021, the Monetary Policy Council started the cycle interest rate increases. As a result, during the year the main reference interest rate increased from 0.1 percent to 0.1 percent. up to 6.75 percent Therefore, according to HRE Investments analysts, in September 2021, someone who had a loan of PLN 300,000. PLN contracted for 25 years with a margin of 2.6 percent. paid an installment of almost 1.4 thousand. zloty. The current installment could increase to almost 2.7 thousand. zloty. This represents an increase of over 90%.
Council in October – later also in November – decided to keep NBP interest rates unchanged. It was the first such decision since October last year, not counting August, when there was no decision-making meeting. So far, the Monetary Policy Council has raised interest rates 11 times.
Meeting of the Monetary Policy Council
HRE Investments analysts in Tuesday’s announcement indicated that “if you believe market predictions and economists’ comments, interest rates in Poland will remain unchanged. Thus, December will be the third month in a row in which the MPC will not raise interest rates.”
Mariusz Zielonka, an economic expert of the Lewiatan Confederation, believes that there will be no interest rate changes this year. “Everything that has happened in the economy in the last month indicates that the dovish approach of the MPC will be strengthened. The dynamics of the Polish industry is gradually losing, consumer demand is decreasing. Poles are buying less, because they have less and less money in their wallets. In addition, the demand is no longer supported by refugees With Ukrainethe number of which in Poland is decreasing and is already below 1 million people” – noted Zielonka.
In his opinion, “RPP is also supported by economic forecasts, which predict that next year will probably be with negative dynamics. GDP. In addition, the mood in the society and among enterprises is still low. And the whole picture is completed by the tightening of monetary policy in the US and euro area“.
According to Bank Millennium economists, the December meeting of the Monetary Policy Council “should result in maintaining the wait-and-see narrative due to the deteriorating outlook for the domestic economy and the unexpected slowdown in CPI inflation in November”.
Bank BNP Paribas economists also expect the interest rate to remain unchanged, i.e. 6.75 percent. “This is also in line with the recent statements of MPC members. According to Ireneusz Dąbrowski, the Monetary Policy Council has not ended the cycle of increases, but the current break in the cycle will last for some time. Iwona Duda, on the other hand, is of the opinion that the current level of interest rates is optimal and further raising them could lead to suffocation of the economy.
“We can’t talk about the formal end of the cycle yet”
“Although it is not yet possible to talk about the formal end of the monetary policy tightening cycle, most economists assume that interest rates will not be raised in December 2022. Some even say that it will be the least unpredictable decision of the MPC in over a year. These statements are consistent with the narrative of the the president of the NBP and members of the council” – emphasized the analysts of HRE Investments.
They also noted that in the light of recent data from the Central Statistical Office on inflation, talking about a slight slowdown in the growth rate of prices of consumer goods and services, “the MPC may refrain from raising interest rates even more”.
According to the preliminary data of the Central Statistical Office, inflation in November 2022 increased by 17.4 percent. Every year. For comparison, in October amounted to 17.9 percent. Every year. This means that the price growth dynamics decreased last month for the first time since June 2021, not counting the decrease in February this year. caused by the introduction of anti-inflation shield.
Analysts pointed out that the change in inflation path predictions can already be seen in the WIBOR market quotations. “This ratio has been falling regularly since the previous meeting of the MPC in November. This is a big change, because this ratio has been growing significantly for months. This is important because the WIBOR level is closely related to the interest rate on most zloty housing loans and the rates offered by banks on deposits,” they explained.
Read also: LIBOR down. Positive signal for borrowers
Analysts pointed out that on Monday the three-month WIBOR (3M) was quoted at 7.22 percent, which is the lowest reading since October 12, i.e. almost two months.
Representatives of HRE Investments noted that “under normal conditions, the level of the index is 0.25 percentage points higher than the basic interest rate”. Meanwhile, on the eve of the December meeting of the MPC, this difference was almost twice as high. “This means that the market still does not rule out another rate hike of up to 25 basis points (0.25 percentage points) in the coming months, but it is no longer sure of such an upward move,” we read.
Loan installments may decrease slightly
According to analysts, “an even stronger breath of optimism can be found by delving into the latest quotations of futures contracts on the interest rate”. “These help us look into the future and check how interest rates and loan installments may develop. The quotations of futures contracts (FRA) as at 05/12/2022 suggest that in the coming months the WIBOR 3M rate will continue to decrease. If that wasn’t enough, the same data show that in the second half of 2023, the beginning of interest rate cuts is possible – at least that’s what the current quotes suggest.
However, the decrease, if it occurs, will not be large. Analysts explained that current futures forecasts suggest that “in six months, borrowers may see only a cosmetic decrease in their monthly liabilities – by about PLN 70 per month”.
At the same time, analysts pointed out that the quotations of futures contracts are affected by a number of economic, economic or geopolitical factors on an ongoing basis. “On the one hand, if the MPC does not change the level of interest rates at the December meeting, interest rates in Poland may start to go down. On the other hand, unexpected changes in our environment may completely change the scenarios formulated today” – representatives of HRE Investments noted.
Main photo source: MOZCO Mat Szymanski – stock.adobe.com