Where are we at with Polish interest rates?
Team BigDoor24.pl - Monday, May 16, 2022 Tags: Buy Gdansk Gdynia General Information Investment Katowice Krakow Let Lodz Polish Economy Polish Mortgage Polish Property Poznan Rent Sell Warsaw Wroclaw
Up, Down - It doesn't matter if you can't afford a mortgage
If Poland hadn't been one of the most successful global economies of the last 30 years then we wouldn't be facing the current inflationary tsunami in the same way.
To put things into context, Poland, according to the World Bank, is one of the fastest growing economies in the world. With this came many good things but the increased salaries, increased growth etc. always, always come at the cost of higher prices. Namely inflation.
Signs of this inflation problem were evident before the coronavirus epidemic that forced global interest rates to next to zero. We had argued then and during the pandemic that Poland's inflation problem wasn't going to go away by itself and the noticeable delay by the central bank to hike rates until only recently have made the problem even harder to suppress.
The government is busy blaming the Russian war for the inflationary spiral but this is disputed by most reputable economists. ING Bank, and many others have all upgraded their forecasts of further rate hikes pretty much every month since January and the expectation is that they will hit 8 to 10 % in coming quarters. For a mortgage with a bank margin we could be looking at 12% p.a. .
Our point here is that we don't believe the NBP has really had a strategy to battle inflation and is now trying to play catch up.
The government have rolled out a package of measures to help mortgage holders ( read voters) that may be badly affected by the new rate levels. This includes mortgage payment holidays, a new rate benchmark and an assistance fund. The argument goes that due to the war, energy prices have sky rocketed and supply chain issues from China have really caused the inflation problem. Essentially, these are exterior problems that are affecting every country. If this were completely true, and it's a fair(ish) argument, then raising interest rates will affect neither the energy costs nor the supply issues. So why do it?
Core Inflation is the key
Here are a couple of numbers. Core inflation (Inflation excluding food and energy) in Poland just hit 7.7 %. In the EU it's 3.6%. This means that even without the war or China the cost of living has gone up. Or to put it another way, the zloty you had last year can buy less than it can today (by almost 8%). Unemployment is at 5.5 % which is essentially zero when you factor out people with health issues etc..
Until core inflation begins to fall there will be no let up in interest rate increases.
What does it mean for housing?
First of all, holding cash in an inflationary environment is never a good idea. It basically decreases in value every day. Anyone who has read history remembers the wheelbarrow of Deutschmarks needed to buy a loaf of bread.
Demand for housing has collapsed but so has supply. Developers are building less as Ukrainian workers have disappeared and buyers are scarce. Rents have increased as existing landlords try to earn enough to cover their repayments and with less people able to afford new mortgages, they will be forced to remain in rented accommodation.
If we look around the EU, in Ireland, there has been an 81% decrease in rental properties in Dublin in the last year. There is no reason why this cant happen in Poland.
What will buyers/renters do?
Our guess is cash buyers will keep buying (to protect their cash), renters will demand higher wages. These higher wages will increase inflation. And the circle continues (and rates keep going up).
If you earn in Euro (and so can borrow in Euro) then it may be worth your time reading our post from earlier in the year. It may be the opportunity of a lifetime.
If you disagree with any of our analysis or have something to add please let us know. We would love to hear your arguments.
Team BigDoor24.pl - Just Easier