Double rate hike. Central banks are trying to fight inflation

On Wednesday, the FED raised rates by 0,5 pp, and on Thursday it did so for the eighth time in a row The Monetary Policy Council. The rates increased by 0,75 pp to 5,25%. However, they are growing slower than inflation, which in April amounted to 12,3%, ie 1,3 pp more than in March. Losses of bank deposit holders are also record-breaking.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.

Feet up but it's not over yet

FED started raising interest rates in March, and on Wednesday he made the second hike in the series, by 0,50 pp. Earlier, the FED did not raise rates, which in 2021 was one of the arguments of the Monetary Policy Council, to refrain from rate hikes in Poland. NBP since October 2021, he has stopped looking at the Fed and raised interest rates at all eight subsequent meetings. Today it increased by 0,75 pp, which means that the basic interest rate in Poland is now 5,25%.

The real interest rate (interest rate minus inflation) in Poland, however, fell again, as inflation rose more than rates, from 11 to 12,3 percent. A month ago, the real rate in Poland was -5,77%, now it has dropped to -6,28%. The most worrying fact is that inflation may continue to rise in the coming months, which will further lower the real interest rate. All the time, the real rate in Poland is higher than the American rate, which is currently -6,91 percent.

Although the rates are already 5,25 percent, until recently the best deposits did not exceed 2 percent. And this meant that the most important of the goals of the increases, i.e. encouraging them to give up current consumption in favor of saving, was not fully implemented. We also have another month of record losses behind us, borne by holders of ending annual deposits. Deposits for 12 months opened in May 2021 with an average interest rate resulted in losses of 10,86% after a year.

WIBOR drains borrowers' portfolios

While the interest rates on deposits do not grow as fast as interest rates, the WIBOR market rate is rising faster than the rates (3M WIBOR is currently 6,14%). It is the basis for calculating the interest rate on mortgage loans with a variable interest rate. It is the borrowers who currently bear the greatest costs of rate hikes. This can be seen in the falling stocks of Polish banks, which are facing several problems with mortgage loans. The first is loans in foreign currencies and processes with borrowers for which banks have to create provisions. Another one is the growing problems of borrowers in zloty and a possible deterioration in the quality of the portfolio of these loans. The third is the emerging proposals of politicians regarding possible assistance to housing borrowers, which would be financed to a large extent by the banks themselves.