{"id":18866,"date":"2023-11-16T11:07:51","date_gmt":"2023-11-16T10:07:51","guid":{"rendered":"https:\/\/badania.uew.pl\/non-fiction\/the-magic-of-interest-rates\/"},"modified":"2024-05-07T11:44:35","modified_gmt":"2024-05-07T09:44:35","slug":"the-magic-of-interest-rates","status":"publish","type":"page","link":"https:\/\/badania.uew.pl\/en\/comments-from-uew-experts\/the-magic-of-interest-rates\/","title":{"rendered":"The magic of interest rates"},"content":{"rendered":"\n
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The magic of interest rates – on the need for balance in the financial system<\/strong><\/h3>\n\n\n\n

dr hab., prof. WUEB Boguslaw P\u00f3\u0142torak<\/a><\/strong><\/p>\n\n\n\n

expert of the Wroclaw University of Economics and Business<\/p>\n\n\n\n

We live in a time when the laws of economics interact with multiplied force, and economics itself is proving to be a science. It works for those who believe in the laws of the market, as well as those who hail statism, or also those seeking an alternative third way. <\/p>\n\n\n\n

It is no coincidence that economic crises create the greatest motivation for change <\/strong>. Poland’s path of economic transformation from the systemic leap in 1989, accession to NATO, and after 2004 the leap of civilization in the Common Europe, has not ended and probably never will, but it is worth taking care of our Poland. Admittedly, somewhere along the way the myth of the “green island” somewhat lulled our vigilance<\/strong>, but was it in the face of epidemics, conflict and crisis that Polish society nevertheless woke up, showed its committed face, whose name is turnout.<\/p>\n<\/div>\n\n\n\n

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There is also an economic dimension to this, which is found in the word inflation, which is repeatedly mentioned. Everyone has their own definition, and the inflation rate published officially is commented on almost daily to the last digit after the decimal point. Core inflation, disinflation, slump inflation or, finally, stagflation, which bred into the economy for a long time.<\/strong> Poland already remains the only major country in the region with negative real interest rates, and it is hard to believe that deflation was threatened a few years ago, forgetting that it was a healthy symptom of a growing and increasingly productive Polish economy. Of course, the strictly (slow) market approach is unlikely to return, and indeed should not in an increasingly virtual reality, but it is also worth remembering that the laws of the market are still at work, and they are by no means virtual, as recent months have made clear.The instrumental use or restriction of market mechanisms can cause stagflation to lead to the perpetuation of an unfavorable economic structure<\/strong>. At a time when the FED, ECB are fighting inflation at all costs, tolerating negative real interest rates sanctions an inflation tax imposed on everyone, and unfortunately, it is especially severe for the weakest, least aware. After all, in ancient or medieval times, rulers were also eager to use this instrument of economic power, only then it was called outright money spoilage. While taking care of the value of money today, it is worth remembering that behind it is the economic power of certain parts of society, and at the same time it should be taken care of in a transparent manner.<\/p>\n\n

In murky water, of course, it is better to do things that are sometimes more or less justified, but this is a common motto of politicians who want to make their people happy by force, with special solutions, shields, or other proud-sounding names. This hasn’t changed for centuries, but the environmental conditions are already changing more and more. As in a mirror, these phenomena reflect the financial markets, and the state in them has a special role. Opaque monetary and fiscal policies introduce uncertainty and cause speculative bubbles or instability.<\/strong> As a result, real incomes, consumption and savings are falling, and more and more irrationality is emerging in an environment of negative interest rates. And in the end, investment, jobs and future development are the casualties. A further decline in domestic investment, meanwhile, is increasingly reliant on international markets and foreign transfers and is reducing the level of investment financing in the traditional way (from savings).<\/p>\n\n

The belief that the addition of <\/strong>money based on debt<\/strong> public can be the fuel of growth, ends up for the time being with a general inflation tax, which in Poland over the past 7 years has been more than 50%. <\/strong> The impact of the end of the low (real) interest rate policy in the world and Poland on economic growth will have the effect of reducing macroeconomic and credit risk in portfolios in structural terms in the future, while for the moment it may cause even more stress in the face of simultaneous supply shocks.The cure may be bitter, and the shortcut is the Eurozone, to lower the real cost of capital and anchor Poland in Europe, as Poland’s economy with 2\/3 of its exports has long been there. We are certainly going back to the time when certain things in the economy have to be done according to art, because it will simply pay off for everyone.<\/p>\n\n

Poland’s consumer price index (HICP) from 1995 to 2023*<\/p>\n\n

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    *Developments based on: European Central Bank – Statistical Data Warehouse<\/em><\/p>\n

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    \u201cMagia st\u00f3p procentowych \u2013 TAKE HOME MESSAGE\u201d\u00a0<\/strong><\/p>\n\t\t\t

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    1. stagflation and its impact on economic structure<\/strong>
    The current economic situation poses challenges. Stagflation, a combination of recession and inflation, results in the perpetuation of an unfavorable economic structure. In addition, negative real interest rates de facto introduce an inflation tax, which has far-reaching consequences for all of us citizens. Opaque monetary policy leads to uncertainty in the markets and generates speculative bubbles. As a result, citizens’ real incomes are falling, consumption is declining and savings are losing value. A further decline in domestic investment increases our dependence on international markets and foreign transfers.<\/p>\n\n\n\n

    2. negative real interest rates and inflation tax<\/strong>
    For the loan market in Poland, the situation is currently extremely difficult. Our country is the only major country in the region with negative real interest rates, which affects the availability of investment financing. Borrowers are getting lower costs, but there are fewer and fewer people willing to lend more. Unlike the U.S. and the EU, where rising interest rates and positive real interest rates are evident, Poland is stuck in the too-low rates zone. This, in turn, affects investment, credit and the health of the economy in general in the long term, as it will take longer to return to normalcy.<\/p>\n\n\n\n

    3. uncertainty caused by opaque monetary policy<\/strong>
    The solution to the problem is a consistent and predictable monetary policy. Action should be taken to eliminate negative real interest rates by adjusting monetary policy instruments. It is also necessary to stabilize inflation and balance the financial markets from the supply side, because today the problems are supply, not demand stimulation. This is perfectly illustrated by the situation in the housing market, where stimulating demand with government programs has led to a further price gallop.<\/p>\n\n\n\n

    4 Implications for the loan market and possible solutions<\/strong>
    Solving this problem will bring numerous benefits. First and foremost, a positive impact on citizens’ real incomes, which in turn will further boost consumption and savings. For the lending market, increasing the availability of credit and investment will benefit economic development. Moreover, the reduction of macroeconomic and credit risks will contribute to stability in the markets, which is crucial for both financial institutions, the state as debtor and average citizens. As a result, Poland will be more competitive and resilient to external shocks, which will benefit us all.<\/p>\n\n<\/div>\n\t\t<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"

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