Interest rates – July 2022. Meeting of the Monetary Policy Council July 7 – Polish Economic Institute forecasts the end of the rate hikes cycle in July

Interest rates in Poland have been increasing since October 2021. According to the Polish Economic Institute, whose activities are financed from the state budget, the July rate hike will be the last in the cycle. Other forecasts are presented by economists of the largest banks in Poland. The next meeting of the Monetary Policy Council will be held next Thursday.

During the meeting in June, the Monetary Policy Council raised interest rates by 75 basis points. It was already nine o’clock an increase in interest rates in a row. The main benchmark interest rate rose to 6.0 percent. This is the highest level since June 2008. The increase in interest rates is related to the rapidly rising prices.

The next meeting of the MPC is scheduled for Thursday, July 7. According to the Polish Economic Institute associated with the Chancellery of the Prime Minister, in July interest rates will increase by 50 basis points to 6.5 percent. and it will be the end of the rate hikes cycle. Meanwhile, in the opinion of Ludwik Kotecki, member of the Monetary Policy Council, the next interest rate hike “should be at least 100 basis points”.

– We forecast that this interest rate hike will be less than 100 basis points, probably 50, although this scenario 75 cannot be ruled out either. However, more importantly, we are inclined to the opinion that this will be the last increase in the entire cycle – commented Paula Kukołowicz, PIE analyst in the TVN24 program “Get up and know”.

When is the end of interest rate increases?

As she pointed out, the Monetary Policy Council, when deciding on the level of interest rates, does not only take into account growth inflation and stabilize prices. – Here the president of (Narodowy Bank Polski, Adam – ed.) Glapiński announced that stabilizing inflation would be a condition for leaving the cycle of increases. It was said that this was about a situation where several readings in a row would show that inflation was not rising, while at the same time the other side of the factors taken into account was data from the real economy, indicating what could happen to GDP readings, economic growth – explained Kukołowicz.

As she noted, the data coming in are less optimistic because “many factors point to an economic slowdown”. – We are talking about consumer sentiment, which is more pessimistic and more pessimistic than at the start of the pandemic. We are talking about PMI readings indicating the moods of producers from the industrial sector and in Poland this indicator fell below 50 points in May, which indicates a clear slowdown. This is also happening in world economies – said the PIE analyst.

Paula Kukołowicz was asked why the Polish Economic Institute expects the July rate hike to be the last in the cycle. – Not only inflation itself will be important, but also core inflation, so inflation that will not show increases in food and energy commodity prices. Monetary policy has no influence on these factors, but has a greater impact on cooling demand in other sections of the economy, and also on cooling down consumer demand, which will be shown by core inflation – Kukołowicz replied.

In her opinion, “it will be this reading (core inflation – ed.), Which will be crucial, because we have no influence and we will not have any influence on what will happen in the energy commodity markets, food commodity markets and no interest rate hikes. percentages here will not improve the situation. “

Banks predict further increases

PKO BP economists also assume that the MPC is approaching the end of the interest rate hike cycle, although, as indicated by the July rate hike, it will not be the last. “The Council will still want to react to the rise in current inflation in order to anchor inflation expectations. That is why we predict an increase in NBP rates by 100 bp in the third quarter of 2022 (reference rate to 7.00 percent), in two moves of 50 bp in July and September” – we could read in the “Economic Quarterly”. According to the current schedule of the MPC meetings, the August meeting scheduled for August 23 will be indecisive.

In turn, according to the economists of Credit Agricole, interest rates will be raised by 75 basis points in July and by another 50 basis points in September and October. “Thus, the reference rate will reach 7.75% in Q4 this year, and the monetary policy tightening cycle will be completed” – wrote the economists from Credit Agricole in the report.

According to the economists of ING Bank Śląski, the market hopes that the NBP will follow the region’s footsteps. In case of Hungarian the interest rate hike amounted to 185 basis pointsa Czech – 125 basis points. “This increases the pressure on the NBP. In such an environment, the continuation of the narrative about the approaching end of the rate hikes cycle may weaken the zloty. The NBP rate is now 6.00 percent, and next week the MPC should raise by 75bp (with an upside risk)” – we could read in Wednesday’s “Dziennik ING”.

Bank Millennium economists the decision of the National Bank of Hungary “has a neutral impact on the prospects of monetary policy in Poland”. “We assume an NBP interest rate hike next week by 0.75 percentage points to 6.75 percent, which will not be the last word of the Monetary Policy Council in this cycle of monetary tightening” – they wrote.

Wojtyla: I would be very careful with any declarations

According to Dr. Edyta Wojtyla, economist at WSB University in Poznań, in the current situation we cannot talk about “true forecasts”. – Observing all the data from the economy, observing what is happening and the forecasts, I would say that we do not have real forecasts, because the bombs on Ukraine are still falling (…) and I would be very cautious about any declarations that we are raising / not raising (interest rates – ed.), because at this point the policy of all central banks, the most important in the world, is a reactive policy and it reacts to what is happening in the economy, not the other way around – she explained.

– Now it is macroeconomic data, inflation data, data on the strength of the currency that will verify the decisions of central banks. This is happening in Poland and in the world, so politics is reactive and there is also one that we cannot predict, because we cannot predict the further consequences of the war and what is happening when it comes to the supply of raw materials in the world – said Wojtyla.

WIBOR indicators up

Following the increases in interest rates, the level of WIBOR indicators is also rising. WIBOR and the bank’s margin are components of the interest rate on loans. Some banks use the WIBOR 3M (three-month) 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-month), the interest rate is updated every six months. The above rates include probable increases or reductions in interest rates that may occur during this period.

WIBOR 3M is at the level of 7.05 percent, and WIBOR 6M – 7.34 percent. This means that if we had or will have updated installments in the coming days, a possible July rate hike – at least partially – is included in it.

WIBOR 3M during the last

As TVN24 Biznes Bartosz Turek, the chief analyst of HRE Investments previously informed, “in normal times, the difference between the 3M WIBOR and the reference rate should (…) amount to approx. 0.25 percent.” – If we start to approach the end of the interest rate hike cycle, the aforementioned disproportion should also start to narrow towards the aforementioned 0.25 points. percent he explained.

Main photo source: tvn24


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