Installments react differently than MPC. Big turnaround in loans
- At its meeting on Wednesday, the Monetary Policy Council lowered the reference rate by 50 basis points to 5.25%.
- The Council maintained the previous level of interest rates from October 2023.
- Even before the Monetary Policy Council made a decision on interest rates, WIBOR began to react. What does it look like now?
The two-day MPC meeting ended on Wednesday. The reference rate fell from 5.75% to 5.25%. The decision was in line with market expectations. The previous level of interest rates was maintained from October 2023.
Even before the Monetary Policy Council made a decision on interest rates, WIBOR, which is used by banks to calculate the interest on our loans, began to react . It works in advance. This is beneficial for borrowers in the period of expected rate cuts - then the installments can fall even before the official decision of the MPC. It is worse in the situation of interest rate increases, because WIBOR usually precedes the decisions of the MPC.
Let's recall that WIBOR is the interest rate at which banks lend money to each other. For the customer, it is part of the loan interest. The second part is the bank's margin - it is constant for the entire duration of the loan.
In the case of WIBOR 3M, the installments are updated every three months, and if someone has WIBOR 6M, the change occurs every six months. WIBOR 1R means a change once a year. When exactly? It depends on the moment of signing the credit agreement - from that day the time to the change of interest rate is counted.
What are the current trends in key WIBOR indicators?
- WIBOR 3M - 5.29%
- LIBOR 6M - 5.00%
- WIBOR 1R - 4.82%
As you can see, only the three-month WIBOR more or less corresponds to the MPC decision. The next ones are much lower, which means that more interest rate cuts are expected.
For example, in the case of a loan of PLN 300, 400 or 500 thousand, for 30 years and after adding a margin (2 percent), the installments for WIBOR 3 M may look as follows:
- 300 thousand PLN - 2,057 PLN
- 400 thousand PLN - 2,743 PLN
- 500 thousand PLN - 3,429 PLN
If someone has decided on WIBOR 6M, the installments will be:
- 300 thousand PLN - 1 999 PLN
- 400 thousand PLN - 2,665 PLN
- 500 thousand PLN - 3,331 PLN
As for WIBOR 1R , borrowers can expect the following installments:
- 300 thousand PLN - 1,963 PLN
- 400 thousand PLN - 2,617 PLN
- 500 thousand PLN - 3,271 PLN
What decisions can we expect from the Monetary Policy Council in the coming months? According to PKO BP analysts, the Council will lower rates twice more: in the summer, when inflation falls below the 3.5% y/y threshold, and in the fall, having already received hard data on stable energy prices for households despite their unfreezing.
In our opinion, at the end of 2025 the reference rate will be 4.75%. Next year we expect a reduction by another 100 basis points, ultimately to 3.75% - they wrote.
ING experts also see significant room for adjustments to the restrictiveness of monetary policy in the coming quarters. "If our inflation scenario is realized (inflation drops to around 3% y/y in H2 2025), the Council may cut interest rates by 125 bps this year , and at the end of 2026 the reference rate may drop to 3.75%," we read.
In their opinion, the key unknown is the strategy of adjusting monetary policy to the improving inflation outlook. "A 50 bp rate cut is in line with market expectations. We assume that there will be a pause in June, and the MPC will return to cuts in July, after reviewing the updated inflation projection. We expect that subsequent moves will be made on a smaller scale (25 bp) along with the macroeconomic data flowing from the economy," they explained.
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