After a year and a half of extremely low interest rates, we are slowly returning to the values last quoted 10 years ago. In the space of five months alone, the Monetary Policy Council raised interest rates as many as five times, which quickly translated into interest rates on loans and credits. However, this is not the end of the increases, and as analysts estimate, 2022 will be the year that borrowers – especially mortgage borrowers – will remember for a long time.
The time of cheap money is over
And unfortunately, this is a fact. Interest rates in Poland have been successively falling for nearly 10 years a year. The first reduction took place in November 2012. The reference rate twitched slightly from 4.75 percent to 4.5 percent. The next MPC meeting resulted in a repeat, and so on throughout 2013. Stabilization at 1.5 percent took place in 2015, until the pandemic, when the National Bank of Poland, in an effort to boost demand, cut the value of interest rates on loans, deposits and bills several times, down to near zero, i.e. 0.1 percent. This state of affairs lasted for another 16 months, until October 2020.
At the time, the borrowers, who were exasperated and somewhat hungry for consumption and more expensive real estate, hit the banks for money as cheap as we have not seen in Poland. Low interest rates on home loans led banks and SKOKs to issue a total of more than 400,000 mortgages worth more than PLN 126 billion between June 2020 and October 2021 alone. Now, however, the time of bitterness has come, and the installments on these obligations are gliding so fast that institutions have to send new repayment schedules every month.
National Bank of Poland in a cycle of increases. Inflation (?) is to blame for all this.
Despite the fact that Adam Glapinski has repeatedly insisted in 2021 that the NBP is not in a cycle of increases, and that the Monetary Policy Council’s decisions are adjusted on an ongoing basis to the economic situation in Poland and the world, this cycle is a fact that is no longer being discussed. A five-fold hike – month after month – is nothing but a cycle, and at a recent press conference even the head of the NBP is already making it clear: There will be more rate hikes. It is unclear, however, how high.
Everything is blamed, of course, on inflation, which is rushing towards double-digit figures, and Prime Minister Morawiecki’s government, despite two anti-inflationary shields and blaming the price hikes on the Union and Russia, is unable to cope with it. To be fair, both shields came into effect relatively recently, but inflation itself, above the NBP’s inflation target, appeared much earlier.
It is worth recalling at this point the words of Adam Glapinski, among others, who argued as late as the end of 2020 that “we are not threatened by inflation, we are threatened by too low inflation,” and that the Polish economy and the home currency are doing well. However, it only took a few months of revived demand – due to low interest rates and the unfreezing of the economy – for prices to begin to skyrocket.
The EU and Russia were blamed for inflation. MPC’s actions “adequate to the situation”
Many economists accuse the Monetary Policy Council of taking decelerating actions, and therefore the first interest rate hikes were late, but to this day the head of the NBP does not admit that a mistake was made. Indeed, the rhetoric is similar, in fact, analogous to that of the Prime Minister: “the Union and Russia are to blame for inflation.” The Union because of its energy policy, Russia for artificial increases in commodity prices.
Admittedly, on several occasions Prime Minister Morawiecki has admitted that the pumping of a hundred and several tens of billions of zlotys into the economy to “bail out entrepreneurs” as part of the anti-crisis shields is also behind the price increases, but this is not very widely proclaimed by the ruling party, and certainly not the main driver of inflation.
Also adding spice is the Polish Deal, which has introduced more chaos than the envelope election, the “Banasio affair” and the respirators from the arms dealer combined. Admittedly, the government has introduced a higher tax-free amount, which will indeed provide relief to millions of Poles, but one of its flagship programs, the “no-contribution apartment,” as things stand, can only sink them. Why? So let’s return to the title question.
Will loan installments go up?
As we mentioned earlier, the MPC is definitely in a cycle of increases, and even Adam Glapinski himself – recently hawkish – is already talking about further increases. The first words from the head of the NBP about the recommended further increases came in an interview with Bloomberg. Then the central bank governor, to everyone’s surprise, said that interest rates in Poland should be higher than market expectations. And this one is betting that they will rise to 4-4.5 percent by the end of 2022. This is based on the so-called FRA contracts (for future interest rates).
If there were doubts about whether interest rates will rise, one need not look far. Just a few days ago, the day after the MPC’s next decision to raise rates, Adam Glapinski announced that he would be recommending further increases to the now new Council. We can therefore expect the next meeting to end at least similarly to the one in February 2022 (+0.5 percent).
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Will loan installments go up in 2022? Definitely yes. After all, both the market and economists expect it, and the head of the National Bank of Poland himself is preparing us for more increases.
