WIG20 with a double top – MPC rate cuts in the lead role

It is not yet fully known how to perceive the expected interest rate cut by the Monetary Policy Council, whether as something positive or negative, especially in the context of bank shares in WIG20 and the impact of lower rates on their future results. Also crucial is the reduction of the interest rate differential between the złoty and the dollar, where US capital has been looking for safe havens outside the US in recent weeks due to Trump's policy.

Currently the reference rate NBP is 5,75%, but 3M WIBOR is already 5,36%, and the yields on 2-year bonds have recently fallen to 4,30%, which was the lowest level since March 2022. All this seems to indicate incredibly high expectations regarding the easing of monetary policy by the Monetary Policy Council in Poland. These expectations reach up to 2 percentage points over the year, with the biggest changes to occur in the near future. Market consensus indicates a cut of 0,5 percentage points tomorrow, Wednesday, May 7, after the two-day meeting of the Monetary Policy Council that began today.

This would not be the end of the cuts in the spring-summer season and further rate cuts are possible at subsequent meetings, perhaps even by a total of 1 to 1,25 percentage points. It therefore seems that the stock market should largely accept with relief the decrease in the cost of financing and the decrease in discount rates and the beginning of the cycle of adjusting interest rates downwards in Poland. Nevertheless, what is perhaps positive for most businesses may cause increased uncertainty for banks, seeking answers to the questions of whether the volume of loans at lower rates and fixed-rate loans will cushion the decrease in results due to the rapid decrease in interest rates.

The behavior of foreign investors also seems to be important. The aforementioned speculators from the USA, whose presence we could observe after the strong strengthening of the euro against the dollar and thus the złoty against the dollar, may have to take into account the change in the PLN interest rate. The current discrepancy in interest rates is 1,25 percentage points (the NBP reference rate minus the upper limit of the range for the fluctuations of the rate Fed). Perhaps by the end of the summer the interest rate of the złoty against the dollar will narrow to only 0,25 percentage points of advantage. If then investors come to the conclusion that this is no longer a profitable business, they may start selling Polish assets and returning with capital to the US.

Of course, for this to materialize, first of all the Monetary Policy Council must lower interest rates in line with expectations, and this has been variable in the future.