In July, inflation in Poland rose to 4.2 percent. This not only puts pressure on a rise in prices but also poses a problem for bank deposit holders. The best yearly deposits ended in July, yielding a real return of just 1.2 percent for their owners. And it’s set to get worse.
The jump in inflation to 4.2 percent year-on-year (from 2.6 percent in June) is primarily due to an increase in electricity prices, a portion of which was frozen on July 1st. We forecast that higher inflation at the level of 4.5-5 percent will persist until the end of 2024. This means that an interest rate cut in Poland will occur at the earliest in 2025. Much will depend on the course of inflation next year since we are facing a full unfreezing of energy prices from the beginning of 2025.
Rising inflation poses a problem for bank deposit holders as it significantly reduces their real returns. The owners of yearly deposits that ended in July 2024 earned an average of 1.24 percent on them. This results from the fact that the average interest rate for new yearly deposits, according to NBP data, was 5.8 percent in August 2023 (these deposits ended in July 2024). With inflation at 4.2 percent, the real interest rate was 1.54 percent. After taking into account the 19-percent tax on interest, the real interest rate on such deposits fell to 1.24 percent.
At the beginning of 2024, holders of annual bank deposits finally began to record profits after three years of large real losses. This was due to the fact that the rates of even the best deposits did not keep up with inflation. Lower deposit rates resulted from the difference between inflation and the level of interest rates: inflation reached the level of 18.4 percent in February 2023, while the highest level of NBP’s basic interest rate during this cycle was 6.75 percent. This caused the real losses of deposit holders to reach -14.5 percent in September 2022.
This year, real profits from deposits began to grow due to falling inflation while maintaining interest rates at 5.75 percent. As a result, real profits from annual deposits exceeded 3 percent in February 2024 and remained in the range of 3-4 percent until the end of June.
In the near future, the profits of deposit holders will continue to decline due to rising inflation and a concurrent drop in the interest rates of the best deposits from 6 percent to 4 percent (according to NBP data). After the summer, we can expect that annual deposits will start to generate losses again.
Bank deposits remain part of many investors’ portfolios. According to the latest eToro Puls of Individual Investor study, 66 percent of Polish investors hold cash or bank deposits. In this respect, Poles do not differ from investors in other markets – these products are held by 69 percent of global investors.
Source: https://ceo.com.pl/lipcowy-skok-inflacji-uderza-w-posiadaczy-bankowych-depozytow-99646
