Interest rates – money regulation
Interest rates act as a tool that regulates the amount of money present on the Polish market, and thus – for example, stimulates the domestic economy or curbs inflation. The MPC decision is reflected e.g. in the zloty exchange rate and the interest rate on loans and deposits offered by financial institutions.
Impact of interest rates on loans
Along with the easing or tightening of monetary policy by the Monetary Policy Council, it is necessary to prepare for the fact that banks will be more or less restrictive in terms of granting liabilities. What’s more, when rates go down, to make up for the losses associated with it, they usually introduce or increase other fees (e.g. margins, fees for issuing credit cards, higher limits on monthly turnover on the card in order not to pay for it possession etc.). This is connected with the anti-usury act, which imposes on financial institutions the need to set a maximum interest rate at a level no higher than four times the NBP lombard rate.
The lower the interest rates, the lower the interest rate, and hence the profit of the bank or loan company.
For example, until October 2014, interest could not exceed 16 percent, then it was 12 percent, and after the last MPC decision, from March 5 it was only 10 percent.
What is WIBOR?
It is important that not all borrowers will simultaneously experience a decrease or increase in interest rates. It all depends on the date on which the bank where we incurred the commitment updates the loan interest rate (most often it happens every three months). The installments are inextricably linked to the WIBOR rate (the percentage for which banks are willing to grant loans to other banks operating on the Polish interbank market on a day, week, month, quarter, half year, nine months or year), which, apart from the margin, is the basic interest rate component. Banks may use WIBOR 1M, 3M, 6M, 9M or 12M, where the number indicates the number of months after which the rate is updated.
Relaxation of monetary policy
It should be noted that the current trend of monetary policy easing may reverse and cause interest rates to rise. This will happen along with the improvement of the economic situation of the Polish economy and positive signals from European markets. As a result, the loan installments will start to grow, so instead of enjoying the ever lower monthly commitment, it’s worth thinking about securing your funds in advance in case interest rates go up.