Wednesday, 6 May 2009

Mr Crisis, how are you keeping?

Regrettably, Mr Crisis doesn’t have any embodiment and I can’t ask him about his mood. Maybe in the real economy things are getting better, but in the wellspring of the current crisis, namely in banking sector I spot something what I’d call a relapse…

Facts and figures:
1) According to the latest projections of Ministry of Finance and chief economists of leading banks, the year-on-year inflation rate in April crept up to 3,8 – 3,9 per cent.
2) The interest rates on the inter-bank market were rising steadily in April, in the first days of May they shot up.
3) Without any effort one can find a 3M bank deposit with an interest rate of 6 per cent.

1) With the central bank’s benchmark rate at 3,75 per cent, one would say simplifying (the rates do not refer to the same time period) that we move towards a situation when the real interest rates drop below zero!
2) The central bank’s rates have nothing to do with the real costs of financing for banks, the discrepancy between them is swelling (today 67 base points), the inter-bank market rates are drifting from the outer space, where they were sent by decisions of Monetary Policy Council, towards the Earth, I guess.
3) Yesterday I paid some of my savings in 3M deposit with the annual interest rate of 6 per cent, whereas yesterday’s 3M WIBOR amounted to 4,38 per cent. Neglecting the fact that settlements between banks are made two days after concluding the transaction, bank paid for my deposit roughly WIBOR + 1,62 percentage points. If the same bank granted in, let’s say, 2006 a mortgage with the interest rate calculated at WIBOR + 1,50 percentage points, bank is nowhere else but in dire straits. Evidently, it’s a big simplification, bank will eventually be in the black – it’ll shift the costs on other clients, excluding me, banking charges do not apply to me ;)

1) By cutting interest rates central banks probably won’t stimulate the economy, but MPC would probably keep loosening monetary policy just to shun accusations of lack of reaction to deteriorating economic indicators. If we can’t revive the flabby economy, let’s make the effort to curb the inflation, which threatens our savings.
2) The crisis came over once again, now it’s about time we sought after an expedient to relieve the pain.
3) Hikes in banking charges are inevitable in a situation banks pay over the odds for the deposits.

Now up to you… Having any ideas how to restore the balance and not to let the bloodstream of the economy go under?

My own proposal is to push the central bank’s interest rates up, gently, by 25 base points, so that the benchmark rate jumps up to round 4 per cent. Of course you can do me down, call me a lunatic, accuse me of signing a death warrant… Alright, I’ll concede if you prove me wrong, but firstly I’ll hold out for the justification.

Beware! There might be a catch…

Feel invited to the discussion!
Czyli zapraszam do dyskusji!

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