We are still awaiting new big interest rate hikes. According to economists of the BNP Paribas bank, the main NBP rate will ultimately increase to 8 percent. It is almost twice as much as today. If WIBOR rates increase on such a scale, mortgage instalments will go up by another third.
After seven increases in interest rates by the Monetary Policy Council, the main NBP rate – the reference rate – is now 4.5 percent. The last rate hike was made by the MPC at the beginning of April, increasing them by as much as 100 basis points.
According to experts from BNP Paribas, the Council will go much further with its decisions.
“We are raising our forecast of the NBP reference rate and we assume that at the end of the ongoing cycle of interest rate increases it will reach the level of 8%. against 6.5%, which we have expected so far”, the bank’s economists informed on social media.
The bank’s experts justify their change in the forecast by winding up the so-called wage and price spiral. According to the latest data from the Central Statistical Office of Poland, the average wage in enterprises increased by 12.4%. on an annual basis, while experts expected a slightly over 10% increase. At the same time, inflation was 11% year-on-year.
“The main reason is the winding up of the wage-price spiral, with high economic activity at the beginning of this year and the prospects of fiscal easing. In our opinion, this will induce the MPC to even more aggressive tightening of monetary policy parameters” they wrote on Twitter.
The BNP Paribas forecast is the first estimate of such a high increase in interest rates. But market expectations aren’t much weaker. According to the valuation of FRA (forward rate agreement) contracts, in which investors assume the level of interest rates in the future, the target level is around 7%. In turn, ING Bank economists believe that the MPC will increase rates to 7.5%. And they give a similar reason: the rate of wage growth, which exceeds inflation, which suggests a winding up wage-price spiral.
Banks do agree with each other
According to ING, in May the Monetary Policy Council will raise rates by 100 basis points . It would be the second such big raise in a row.
Experts from Pekao SA are of a similar opinion.
“In our opinion, the MPC will raise interest rates by 100bp at the May meeting. The reasons: higher inflation path, strong labor market and persistent wage pressure, still no visible signs of slowing down the accelerating economy”, they wrote on Twitter.
How much will loan instalment will increase
How can this translate into loan instalments? The shortest answer: they will definitely increase. Because most loans granted by Polish banks have a variable interest rate, based on WIBOR rates. And these accurately reflect changes in the central bank’s interest rates.
How much will the instalments increase? After the first rate hikes made by the MPC, WIBOR rates preceded the decisions of the Council and now they maintain a more or less constant distance from them. For example, the six-month WIBOR is higher than the NBP reference rate by approximately 1.5 percentage points. Currently, at 4.5%, the WIBOR 6M reference rate is 5.91%.
If this dependence persists, it can be assumed that with the NBP rate rising to 8%, the WIBOR 6M will reach 9.5 percent. And the mortgage rate that is based on it will approach 12 percent. per year, if you take into account the margins of 2.3 percent. Of course, we are talking about loans taken during the pandemic, shortly before the beginning of the interest rate hike cycle.
How much will the instalment be then? We show this in the chart below. Of course, this is only a simulation, it shows how much the instalment should be in the given circumstances. But instalment increases do not happen automatically, banks generally revise interest rates once a quarter (or even once every six months).
Our calculations show that the instalment of a sample loan of 350 thousand. PLN, granted in September 2021 for 25 years, after the previous increase, WIBOR increased from approximately PLN 1,582 to PLN 2,750. If the scenario the banks are talking about happened, then the instalment would increase by an additional PLN 861 to PLN 3611 per month.