The Monetary Policy Council decided to leave interest rates unchanged. This pleased borrowers, as 11 interest rate hikes doubled their premiums. Interestingly, maintaining interest rates even means lower payments. How is this possible?
The main base rate remains at 6.75%. This is another such decision by the IPC, but the IPC has previously raised interest rates for 11 consecutive months. Is the pay cycle over? Economists, who correctly predicted that the Council meeting would end with rates flat, also agree that the cycle of rate hikes has broken, not finally ended.
The decisions of the Monetary Policy Council affect the level of WIBORs, which are translated into loan payments. The interest rate on loans consists of two elements: the bank’s margin and the WIBOR index. If the home loan has a floating interest rate, WIBOR changes affect the amount of the installment.
Does maintaining interest rates at the current level mean that loan payments in the coming months will be the same as in December? Bartosz Turek and Oskar Sienkowski of HRE Investments argue that many borrowers will even feel the contraction. How is this possible?
This is because the market has gone too far in anticipation of a further increase in the interest rate, which has already increased the interest rate on home loans in zlotys.
No change is positive change
In the current situation, keeping interest rates unchanged means lower payments. This is because the market has gone too far in anticipation of a further increase in interest rates, which has already led to an increase in the interest rate on zloty home loans, the analysis says.
As a result, now that there is no rise in the value of money in Poland, interest rates on loans are starting to fall. The easiest way to show this is on the example of WIBOR 3M. It depends on the base interest rate and is an integral part of the interest rate for most home loans in PLN.
Recall that at the peak (at the beginning of November) WIBOR in the three-month version was quoted at the level of more than 7.6 percent. Such a high level of the index was due to the fact that the market expected a further increase in interest rates by MPC. However, this did not happen. As a result of the lack of an increase, WIBOR 3M traded at 7.01% on January 2, 2023. This is the lowest value of this indicator since the beginning of August 2022.
Market quotes say the worst is over
What will the coming months bring? A bit of optimism can be found in the latest interest rate futures contracts. This helps us look ahead and check how interest rates and loan payments may develop. Futures Contract Quotes (FRA) dated January 3, 2023 suggest that the WIBOR 3M rate will be subject to minor changes in the coming months, however, a decrease in the interest rate is possible as early as the second half of 2023, market data suggests. At the same time, it should be remembered that the quotes of futures contracts are constantly influenced by a number of economic, economic or geopolitical factors.
Rates will continue to fall
However, if current forecasts come true, borrowers may finally feel relieved. Positive changes, however, will be distributed to us almost like in a pharmacy. It will be a very different situation than the one that borrowers have faced in recent months. As a reminder, in September 2021, a person who had a loan in the amount of PLN 300,000. zlotys, concluded for 25 years with a margin of 2.6%, were paid in installments of almost 1.4 thousand zlotys. zloty. In November 2022, the installment on such a loan can reach PLN 2.7–2.8 thousand. zł (increase by 90%).
The latest futures contract quotes (FRA) suggest that borrowers may see a further - several percent - decrease in their monthly obligations in a year. Only in 2024 can interest rate cuts accelerate, and with it, updates to loan repayment schedules should begin to bring more and more positive information from the point of view of borrowers.
Source: Wprost
