The post-election dust has settled, and along with it, the situation in the monetary market has stabilized. After a pre-election two-step reduction in interest rates – first by 0.75% (in September) and then 0.25% (in October), the Monetary Policy Council (RPP) decided in November to maintain the key reference rate at 5.75%, contrary to market expectations of a further reduction by 0.25%. This decision was likely influenced by the election results and the most likely scenario for the formation of a new government, led by pre-election opposition figure Donald Tusk as prime minister. Ultimately, both the market and economists had overestimated the extent of the rate cuts, which was partly tied to the situation on the Polish political scene. The November decision of RPP was evidently a response to numerous questions related to the economic policy of the new government, including decisions about maintaining the 0% VAT rate on food, frozen electricity prices, and the so-called inflation shield, which directly affects inflation.
Here, however, we can note another piece of data from the Central Statistical Office that induces optimism, indicating that as of November 2023, the CPI inflation rate was 6.5%, compared to economists’ expectations of 6.6-6.7%. According to them, we have reached the end of the cycle of so-called rapid inflation drops; from now on, its reduction will be a long-term, labor-intensive process. Remember that inflation at the level of 6-7% is still far from the inflation target of the National Bank of Poland (NBP), set at 2.5% +/- 1 percentage point.
Everything indicates that we are currently dealing with the stabilization of interest rates at their current level for the next few months, most likely until the next inflation projection, which will be published by the National Bank of Poland in March 2024. Therefore, at the upcoming meeting of 5-6.12.2024, rates will most likely be maintained at their current level. Importantly, the majority of the RPP members share this view, according to media reports, and we know that in the past, this unity in assessing the situation was quite difficult to achieve. There is also consensus on this point among economists and market observers. We can expect that the new projection will reflect the economic and fiscal decisions of the new government, which will make it easier for the Council to make decisions.
The Council is also obviously changing its approach concerning the so-called inflation path, which, as a result of previous interest rate cuts and the expected economic recovery in 2024 (mainly through consumption, the 800+ program, National Recovery Plan) may deviate from the optimistic one, forecasted back in July, and therefore decided to stop further monetary policy easing.
In the mortgage loan market, after the quick reactions of WIBOR to the election results and the aforementioned rate cuts in September and October, WIBOR 3M and WIBOR 6M (which are components of the variable rate) had already caught up and today are at 5.83% and 5.82%, respectively, higher than the reference rate (as of 29.11.2023) compared to about 5.55% post-elections i.e., 16.10.2023. FRA (Forward Rate Agreement means a certain interest rate in the future and they are used to hedge interest rate risk) contracts currently stand at 3M and 6M at 5.8%, and they are a short-term forecast. The indicators mentioned also point to the forecast of no interest rate cuts in the near future.
According to the BIK report, October 2023 turned out to be a record-breaking month in terms of the number of mortgages granted – 24.1 thousand loans for the amount of PLN 9.725 billion, which gives an increase of 360.6% in year-on-year terms. This state of affairs is certainly influenced by the government’s Secure Loan 2% program (accounting for about 60% of such loans in October), but also rate cuts increasing the loan capacity of Poles, and a recommendation to reduce the buffer for interest rate risk, proposed by KNF a few months earlier.
It should also be noted that the record-demand for mortgages led to a sharp increase in property prices and a drastic drop in the supply of apartments, especially in large cities. In Warsaw, the average offer price per square meter (according to data for October) is already PLN 16,900 (which represents an increase of 20.7% year-on-year). As for the supply according to the prices for November 2023, only 5.2% of apartments cost up to PLN 500,000, and in the range of PLN 500,001 – 750,000 – 27.5% of the whole Warsaw market (according to data compiled by Marcin Drogomirecki of the Morizon Gratka group).
From the perspective of current borrowers, it is important to postpone the introduction of the WIRON reference rate and replace the currently applicable WIBOR rates. Remember that it was originally supposed to be implemented by the end of 2024. Currently, after being pushed back by the Steering Committee of the National Working Group on Reference Rate Reform, this deadline was set for the end of 2027. At the same time, the recommendation to introduce WIRON into the offer for new customers by mid-2024 is still upheld. The difference in the setting of both rates has a significant impact on the interest rate of loans, and thus on the wallets of today’s borrowers.
It’s worth adding that the market is also experiencing a trend of increasing average margin prices for loans based on a variable interest rate and 5-year fixed interest rates (e.g, as of 27 November, PKO BP, the largest bank in Poland, raised margins by 12 to 25 basis points depending on the amount of the loan (on average by about 15 bp.) for mortgage loans within the WKH package and the standard offer).
Author: Jan Wojtczak, credit expert at Lendi.
