What is a simple refinancing rate? Refinancing rate - what is it?
Let's start with the fact that the refinancing rate is a fixed amount of interest, which is calculated on an annual basis, and is payable by the Central Bank of the country for the loan funds that the Central Bank provided to various credit companies. To explain in a simpler way what a refinancing rate is, it is the interest rate at which the Central Bank provided loans to banking institutions to issue money to individuals and legal entities.
Today, the refinancing rate of the Central Bank of the Russian Federation 2014 is about 8.25 percent. It is worth recalling that back in early March of this year, representatives of the Central Bank decided to increase the level of penalties on the refinancing rate to seven percent. This was officially stated in the official press release of the Central Bank. According to statements, the refinancing rate was increased so that there were no risks for further growth of inflation and maintaining financial stability.
Note that for lending to commercial institutions, the Central Bank uses repo auctions. The Central Bank refinancing rate today is one of the most important instruments of monetary policy of the Russian Federation. When the refinancing rate increases, this leads to a reduction in inflation. Further reductions in inflation, accordingly, lead to economic growth.
It should be recalled that back in the third quarter of last year, Central Bank employees decided, first of all, to focus on the key rate. According to them, the refinancing rate will fade into the background today. Moreover, by the beginning of 2016, it is planned to equalize the size of both rates.
Below is the change in the refinancing interest rate over several years.
HSBC: the refinancing rate needs to be made more stringent
Not long ago, HSBC Global Research experts spoke out about the refinancing rate in their quarterly study. In their opinion, the overall current growth in lending in the Russian Federation indicates the need to tighten the country’s monetary policy. It will be possible to reduce the interest rate only after the inflation rate has dropped significantly.
If the government wants to increase economic growth, it simply needs to remove some barriers to business, infrastructure barriers and ensure effective protection of property rights.
At the same time, some experts believe that the 2014 refinancing rate of the Central Bank of the Russian Federation should not be reduced, since this could lead to a new surge in inflation, which would entail an outflow of foreign capital. Moreover, the Russian regulator is trying to make the national currency more flexible. But nevertheless, the ruble continues to weaken against the general background.
According to the latest forecasts of socio-economic development, it is said that by the beginning of next year, the refinancing rate may rise to 17-19 percent. Also, the increase in new bank claims will have to be about 16-19 percent. Below we would like to show, for comparison, the size of the refinancing rates of various developed countries.
| Validity period | % | Regulatory document |
|---|---|---|
| September 14, 2012 | 8,25 | Directive of the Bank of Russia dated September 13, 2012 No. 2873-U |
| December 26, 2011 - September 13, 2012 | 8,00 | Directive of the Bank of Russia dated December 23, 2011 No. 2758-U |
| May 3, 2011 - December 25, 2011 | 8,25 | Directive of the Bank of Russia dated April 29, 2011 No. 2618-U |
| February 28, 2011 - May 2, 2011 | 8,00 | Directive of the Bank of Russia dated February 25, 2011 No. 2583-U |
| June 01, 2010 - February 27, 2011 | 7,75 | Directive of the Bank of Russia dated May 31, 2010 No. 2450-U |
| April 30, 2010 - May 31, 2010 | 8 | Directive of the Bank of Russia dated April 29, 2010 No. 2439-U |
| March 29, 2010 - April 29, 2010 | 8,25 | Directive of the Bank of Russia dated March 26, 2010 No. 2415-U |
| February 24, 2010 – March 28, 2010 | 8,5 | Directive of the Bank of Russia dated February 19, 2010 No. 2399-U |
| December 28, 2009 – February 23, 2010 | 8,75 | Directive from the Bank of Russia dated December 25, 2009 No. 2369-U |
| November 25 - December 27, 2009 | 9,0 | Directive of the Bank of Russia dated November 24, 2009 No. 2336-U |
| October 30, 2009 - November 24, 2009 | 9,5 | Directive of the Bank of Russia dated October 29, 2009 No. 2313-U |
| September 30, 2009 – October 29, 2009 | 10,0 | Directive of the Bank of Russia dated September 29, 2009 No. 2299-U |
| September 15, 2009 – September 29, 2009 | 10,5 | Directive of the Bank of Russia dated September 14, 2009 No. 2287-U |
| August 10, 2009 – September 14, 2009 G. |
10,75 | Directive of the Central Bank of the Russian Federation dated August 7, 2009 No. 2270-U |
| July 13, 2009 – August 9, 2009 | 11,0 | Directive of the Central Bank of the Russian Federation dated July 10, 2009 No. 2259-U |
| June 5, 2009 – July 12, 2009 | 11,5 | Directive of the Central Bank of the Russian Federation dated June 4, 2009 No. 2247-U |
| May 14, 2009 – June 4, 2009 | 12,0 | Directive of the Central Bank of the Russian Federation dated May 13, 2009 No. 2230-U |
| April 24, 2009 - May 13, 2009 | 12,5 | Directive of the Central Bank of the Russian Federation dated April 23, 2009 No. 2222-U |
| December 1, 2008 – April 23, 2009 G. |
13,00 | Directive of the Central Bank of the Russian Federation dated November 28, 2008 No. 2135-U |
| November 12, 2008 – November 30, 2008 | 12,00 | Directive of the Central Bank of the Russian Federation dated November 11, 2008 No. 2123-U |
| July 14, 2008 - November 11, 2008 | 11,00 | Directive of the Central Bank of the Russian Federation dated July 11, 2008 No. 2037-U |
| June 10, 2008 – July 13, 2008 | 10,75 | Directive of the Central Bank of the Russian Federation dated 06/09/2008 No. 2022-U |
| April 29, 2008 – June 9, 2008 | 10,5 | Directive of the Central Bank of the Russian Federation dated April 28, 2008 No. 1997-U |
| February 4, 2008 – April 28, 2008 G. |
10,25 | Directive of the Central Bank of the Russian Federation dated February 1, 2008 No. 1975-U |
| June 19, 2007 – February 3, 2008 | 10,0 | Telegram of the Central Bank of the Russian Federation dated June 18, 2007 No. 1839-U |
| January 29, 2007 – June 18, 2007 | 10,5 | Telegram of the Central Bank of the Russian Federation dated January 26, 2007 No. 1788-U |
| October 23, 2006 – January 22, 2007 | 11 | Telegram of the Central Bank of the Russian Federation dated October 20, 2006 No. 1734-U |
| June 26, 2006 – October 22, 2006 | 11,5 | Telegram of the Central Bank of the Russian Federation dated June 23, 2006 No. 1696-U |
| December 26, 2005 – June 25, 2006 G. |
12 | Telegram of the Central Bank of the Russian Federation dated December 23, 2005 No. 1643-U |
| June 15, 2004 – December 25, 2005 | 13 | Telegram of the Central Bank of the Russian Federation dated June 11, 2004 No. 1443-U |
| January 15, 2004 – June 14, 2004 | 14 | Telegram of the Central Bank of the Russian Federation dated January 14, 2004 No. 1372-U |
| June 21, 2003 – January 14, 2004 | 16 | Telegram of the Central Bank of the Russian Federation dated June 20, 2003 No. 1296-U |
| February 17, 2003 – June 20, 2003 | 18 | Telegram of the Central Bank of the Russian Federation dated February 14, 2003 No. 1250-U |
| August 7, 2002 – February 16, 2003 G. |
21 | Telegram of the Central Bank of the Russian Federation dated 06.08.2002 No. 1185-U |
| April 9, 2002 – August 6, 2002 | 23 | Telegram of the Central Bank of the Russian Federation dated April 8, 2002 No. 1133-U |
| November 4, 2000 – April 8, 2002 | 25 | Telegram of the Central Bank of the Russian Federation dated November 3, 2000 No. 855-U |
| July 10, 2000 – November 3, 2000 | 28 | Telegram of the Central Bank of the Russian Federation dated 07.07.2000 No. 818-U |
| March 21, 2000 – July 9, 2000 | 33 | Telegram of the Central Bank of the Russian Federation dated March 20, 2000 No. 757-U |
| March 7, 2000 – March 20, 2000 G. |
38 | Telegram of the Central Bank of the Russian Federation dated March 6, 2000 No. 753-U |
| January 24, 2000 – March 6, 2000 | 45 | Telegram of the Central Bank of the Russian Federation dated January 21, 2000 No. 734-U |
| June 10, 1999 – January 23, 2000 | 55 | Telegram of the Central Bank of the Russian Federation dated 06/09/99 No. 574-U |
| July 24, 1998 – June 9, 1999 | 60 | Telegram of the Central Bank of the Russian Federation dated July 24, 1998 No. 298-U |
| June 29, 1998 – July 23, 1998 | 80 | Telegram of the Central Bank of the Russian Federation dated June 26, 1998 No. 268-U |
| June 5, 1998 – June 28, 1998 | 60 | Telegram from the Central Bank of the Russian Federation from 04.06.98 No. 252-U |
| May 27, 1998 – June 4, 1998 | 150 | Telegram of the Central Bank of the Russian Federation dated May 27, 1998 No. 241-U |
| May 19, 1998 – May 26, 1998 | 50 | Telegram of the Central Bank of the Russian Federation dated May 18, 1998 No. 234-U |
| March 16, 1998 – May 18, 1998 | 30 | Telegram of the Central Bank of the Russian Federation dated March 13, 1998 No. 185-U |
| March 2, 1998 – March 15, 1998 | 36 | Telegram of the Central Bank of the Russian Federation dated February 27, 1998 No. 181-U |
| February 17, 1998 – March 1, 1998 | 39 | Telegram of the Central Bank of the Russian Federation dated February 16, 1998 No. 170-U |
| February 2 1998 – February 16, 1998 |
42 | Telegram of the Central Bank of the Russian Federation dated January 30, 1998 No. 154-U |
| November 11, 1997 – February 1, 1998 | 28 | Telegram of the Central Bank of the Russian Federation dated November 10, 1997 No. 13-U |
| October 6, 1997 – November 10, 1997 | 21 | Telegram of the Central Bank of the Russian Federation dated 01.10.97 No. 83-97 |
| June 16, 1997 – October 5, 1997 | 24 | Telegram of the Central Bank of the Russian Federation dated June 13, 1997 No. 55-97 |
| April 28, 1997 – June 15, 1997 | 36 | Telegram of the Central Bank of the Russian Federation dated April 24, 1997 No. 38-97 |
| February 10, 1997 – April 27 1997 |
42 | Telegram of the Central Bank of the Russian Federation dated 02/07/97 No. 9-97 |
| December 2, 1996 – February 9, 1997 | 48 | Telegram of the Central Bank of the Russian Federation dated November 29, 1996 No. 142-96 |
| October 21, 1996 – December 1, 1996 | 60 | Telegram of the Central Bank of the Russian Federation dated October 18, 1996 No. 129-96 |
| August 19, 1996 – October 20, 1996 | 80 | Telegram of the Central Bank of the Russian Federation dated August 16, 1996 No. 109-96 |
| July 24, 1996 – August 18, 1996 | 110 | Telegram of the Central Bank of the Russian Federation dated July 23, 1996 No. 107-96 |
| February 10, 1996 – July 23, 1996 G. |
120 | Telegram of the Central Bank of the Russian Federation dated 02/09/96 No. 18-96 |
| December 1, 1995 – February 9, 1996 | 160 | Telegram of the Central Bank of the Russian Federation dated November 29, 1995 No. 131-95 |
| October 24, 1995 – November 30, 1995 | 170 | Telegram of the Central Bank of the Russian Federation dated October 23, 1995 No. 111-95 |
| June 19, 1995 – October 23, 1995 | 180 | Telegram of the Central Bank of the Russian Federation dated June 16, 1995 No. 75-95 |
| May 16, 1995 – June 18, 1995 | 195 | Telegram of the Central Bank of the Russian Federation dated May 15, 1995 No. 64-95 |
| January 6, 1995 – May 15, 1995 G. |
200 | Telegram of the Central Bank of the Russian Federation dated 01/05/95 No. 3-95 |
| November 17, 1994 – January 5, 1995 | 180 | Telegram of the Central Bank of the Russian Federation dated November 16, 1994 No. 199-94 |
| October 12, 1994 – November 16, 1994 | 170 | Telegram of the Central Bank of the Russian Federation dated October 11, 1994 No. 192-94 |
| August 23, 1994 – October 11, 1994 | 130 | Telegram of the Central Bank of the Russian Federation dated August 22, 1994 No. 165-94 |
| August 1, 1994 – August 22, 1994 | 150 | Telegram of the Central Bank of the Russian Federation dated July 29, 1994 No. 156-94 |
| June 30, 1994 – July 31, 1994 G. |
155 | Telegram of the Central Bank of the Russian Federation dated June 29, 1994 No. 144-94 |
| June 22, 1994 – June 29, 1994 | 170 | Telegram of the Central Bank of the Russian Federation dated June 21, 1994 No. 137-94 |
| June 2, 1994 – June 21, 1994 | 185 | Telegram of the Central Bank of the Russian Federation dated 01.06.94 No. 128-94 |
| May 17, 1994 – June 1, 1994 | 200 | Telegram of the Central Bank of the Russian Federation dated May 16, 1994 No. 121-94 |
| April 29, 1994 – May 16, 1994 | 205 | Telegram of the Central Bank of the Russian Federation dated April 28, 1994 No. 115-94 |
| October 15, 1993 – April 28, 1994 | 210 | Telegram from the Central Bank RF dated October 14, 1993 No. 213-93 |
| September 23, 1993 – October 14, 1993 | 180 | Telegram of the Central Bank of the Russian Federation dated September 22, 1993 No. 200-93 |
| July 15, 1993 – September 22, 1993 | 170 | Telegram of the Central Bank of the Russian Federation dated July 14, 1993 No. 123-93 |
| June 29, 1993 – July 14, 1993 | 140 | Telegram of the Central Bank of the Russian Federation dated June 28, 1993 No. 111-93 |
| June 22, 1993 – June 28, 1993 | 120 | Telegram of the Central Bank of the Russian Federation dated June 21, 1993 No. 106-93 |
| June 2, 1993 – June 21, 1993 | 110 | Telegram of the Central Bank of the Russian Federation dated 01.06.93 No. 91-93 |
| March 30, 1993 – June 1, 1993 | 100 | Telegram of the Central Bank of the Russian Federation dated March 29, 1993 No. 52-93 |
| May 23, 1992 – March 29, 1993 | 80 | Telegram of the Central Bank of the Russian Federation dated May 22, 1992 No. 01-156 |
| April 10, 1992 – May 22, 1992 | 50 | Telegram of the Central Bank of the Russian Federation dated April 10, 1992 No. 84-92 |
| January 1, 1992 – April 9, 1992 | 20 | Telegram of the Central Bank of the Russian Federation dated December 29, 1991 No. 216-91 |
The refinancing rate today remains unchanged and is 8.25%.
For many of us, the pressing issue today is finance, because it is money in our world that decides everything and determines our life and well-being. Therefore, when looking through the news, we often come across terms whose meaning we do not fully understand; one of such concepts is the refinancing rate of the Central Bank of Russia. But only a few actually know what it is. Let us answer the question of what the refinancing rate of the Central Bank of the Russian Federation is in clear language.
What does it mean
Let's start from afar, the Central Bank of Russia is the bank that controls financial activities in the country. To put it in simple and understandable language, it is the main one among commercial banks in Russia; all credit and financial organizations are obliged to obey its laws and requirements; it is this bank that issues and revokes licenses and inspects activities. In general, the financial situation in the country as a whole depends entirely on the activities of the Bank of Russia.
Let's return to the question of what the refinancing rate is. In very simple terms, the refinancing rate is the rate at which the central bank issues cash loans to commercial Russian banks. After all, sometimes every financial institution at a certain stage needs to attract capital from outside, so it can apply for a loan from the Central Bank. That is, the bank takes out a loan from the central bank at a certain rate, this is the refinancing rate.
Please note that the refinancing rate is the percentage at which a commercial bank in Russia receives a loan from the Central Bank.
Let's give a simple example: one commercial bank needed a loan in the amount of 100 million rubles, at that time the refinancing rate was 8.5% per year. At the end of the settlement period, that is, a year, he, that is, the borrower, must return the debt of 100 million rubles plus 850,000 rubles to the Central Bank. Remuneration for the use of borrowed funds.
Actually, from all of the above, it becomes clear what the refinancing rate affects. The higher this indicator, the more expensive loans will be for the population. In fact, each creditor himself is a borrower from the Central Bank, he must return the funds to him at interest; accordingly, in order to make a profit, he borrows money at a certain percentage, and repays it at higher interest rates, the difference between the interest is his income.
What is the refinancing rate: definition
Many readers may probably wonder why the Central Bank does not provide loans to legal entities and individuals. In fact, the Central Bank is not exactly a Bank, it is a controlling body, because the entire financial structure of the country is under its influence, it cooperates directly only with financial institutions, and they, in turn, are intermediaries.
By the way, the bank has another way to attract capital - deposits from the public. But this amount will not be enough for two reasons: the amount of deposits is much lower than the loans issued, in addition, the bank is obliged to pay profits to clients on deposits; it is usually less than the refinancing rate.
Where does this value come from?
So, we have found out what the refinancing rate means, but the question remains of how it is determined or, in simple words, on what grounds the Bank of Russia sets this particular value as the refinancing rate. In fact, it would seem that such a simple indicator is a tool for regulating inflation in the country.
To understand this as accurately as possible, we will consider the issue using an example. The Central Bank issues loans to banks at a low refinancing rate, as a result of which banks make lending for individuals and legal entities more accessible thanks to reduced interest rates. Entrepreneurs actively use bank loans, or, in simple words, cheap money, increase production volumes in order to obtain maximum profits. As a result, the income of the population increases, or more precisely, it increases due to the growth of wages, and they, in turn, from the volume of production. The market is becoming oversaturated with goods.
On the one hand, it seems that the situation is more than wonderful for us, but in practice everything is completely different. Sellers increase the retail price of goods for the reason that people have a lot of cheap money on hand. As a result of all this, the price of the monetary unit falls and the inflation rate rises.
In order to stabilize the situation in the country, the Central Bank increases the refinancing rate, loans become less accessible to the population and entrepreneurs, and money again becomes more expensive. As a result, the inflation rate decreases.
Please note that the refinancing rate is a financial tool for the Central Bank to regulate the inflation rate in the country.
How has the refinancing rate changed in recent years?
Here is a list of how the refinancing rate has changed over the years:
- 2005 13%;
- 2007 – 10,5%;
- 2008 – 12%;
- 2009 – 9%;
- 2010 – 8%;
- 2011 – 8,25%;
- 2015 – 8,25%;
- 2016 – 11%.
Please note that as of June 2017 the refinancing rate is 9%
As you can see, this year the refinancing rate is 9%. And the rate on bank loans ranges from 14.5% (the base rate on a consumer loan at Sberbank of Russia) and higher. On average, today you can take out a consumer loan for up to 20%. Which is more than 2 times higher than the refinancing rate.
Thus, we can draw a definite conclusion that the financial situation in our country depends entirely on such a concept as the refinancing rate. What is this in simple words? Namely, this is the rate at which commercial banks receive cash loans from the Central Bank.
The Central Bank of Russia has many tools in its arsenal that allow it to regulate the economic situation in the country. The key was and remains the refinancing rate.
This indicator determines the level of inflation and the work of commercial financial and credit institutions. Experts and analysts know the instrument in question as the bank interest rate.
The refinancing rate is the interest rate at which the Central Bank of the Russian Federation issues loans to commercial banks. This figure is expressed as a percentage on an annualized basis. There is a simple pattern. The higher the refinancing rate, the higher the interest rate commercial banks charge for loans issued to customers.
In addition, at the beginning of 2016, the Government of the Russian Federation decided that changes were made to the functioning of the Central Bank. From that moment on, the indicator in question was equated to the key rate of the Bank of Russia. Thus, now the value of the refinancing rate is not set separately. It was replaced by the key rate value.
At the same time, in professional discussions, financiers still use all three of these concepts.
As of today, the bank interest rate is 7.75% per annum.
Features of regulation
Adjusting the refinancing rate is a strong lever of the Central Bank of the Russian Federation, allowing it to control the activities of commercial banks in the country.
There are 2 methods of influencing financial and credit institutions.
- The Central Bank of the Russian Federation lowers the key rate. In such a situation, a commercial bank has no choice but to increase its own reserves. This happens by minimizing expenses for obtaining loans from the Central Bank of the Russian Federation. The flip side of the coin is the increase in amounts for transactions with clients.
- The Central Bank of the Russian Federation raises the key rate. Such actions by the regulator provoke the opposite effect. An increase in the refinancing rate leads to a decrease in the reserves of financial and credit institutions. Amounts of transactions with clients are reduced.
Thus, adjusting the refinancing rate has a powerful effect on the national economy. This affects not only banks, but also businesses and ordinary citizens. In this regard, every decision to change the macroeconomic indicator under consideration is made after a thoughtful analysis of the possible consequences.
Relationship with inflation
Changing the refinancing rate has a multidirectional effect. In particular, the adjustment of the instrument in question affects the level of inflation in the country. And this indicator directly affects the interests of all people and companies.
For 2017–2018, the Central Bank of the Russian Federation formulated its main task as maintaining the inflation rate in the range of 4–4.5% per annum. With the help of such actions, the regulator’s analysts expect to stabilize the financial situation in Russia and achieve sustainable rates of economic growth.
The logic here is simple. An increase in the key rate for commercial banks means an increase in the cost of money that can be received from the Central Bank of the Russian Federation. The normal reaction of financial institutions is to increase interest on loans. Companies and individuals in this situation spend and invest less. Money is saved. The demand for goods and services is falling. As a result, inflation decreases.
A decrease in the key rate for commercial banks means a reduction in the cost of funds received from the Central Bank of the Russian Federation. Interest on loans decreases. Individuals and legal entities are actively investing. Demand for goods and services increases. Inflation is rising.
How does it affect deposits?
Ordinary people are not interested in the subtleties of the monetary policy pursued by the Central Bank. They are much more interested in the opportunity to open deposits in financial institutions at high interest rates.
Naturally, the refinancing rate affects the profitability of deposits. Banks in many ways become hostage to the current level of the indicator under consideration. Financial and credit institutions play by the rules introduced by the regulator of state monetary policy.
The existing pattern is simple. If the Central Bank of the Russian Federation lowers the key rate, the yield on deposits also falls. And vice versa. As the level of the macroeconomic indicator under consideration increases, the interest on the offered deposits increases.
This is naked economic theory. As practice shows, banks do not always strive to quickly respond to changes in the key rate. At least when it comes to increasing the return on deposits.
Calculation rules
There is no point in calculating the refinancing rate on your own. The fact is that its size is determined by many variables and is calculated using a complex formula. Besides, it makes no practical sense.
If you need to find out the current value of the indicator in question, just go to the website of the Central Bank of Russia. We do not recommend using other third-party resources for this.
What affects it
It must be taken into account that the key rate never changes spontaneously. Previously, hundreds of analysts and financial experts analyze the current economic situation in the country. Thousands of factors are taken into account. Naturally, among them there are defining ones. Let's take a closer look at them.
Current inflation
Attentive people have noticed that in media releases these two indicators are often inextricably linked. If at first the news presenter said about the refinancing rate, then soon you will hear about the inflation rate. And vice versa.
It is important to take into account that the Central Bank does not set the goal of reducing inflation indicators to zero or negative values. Moreover, the gradual depreciation of money is a natural financial process that has a positive impact on the country’s economy. Deflation is even considered harmful by experts.
Economic activity
The Central Bank constantly monitors the processes taking place in the country. The level of economic activity of business and the population is an important indicator. When it begins to decline and reaches dangerous levels, the Central Bank decides to reduce the key rate.
The result of this regulatory policy is to increase the availability of funds for citizens and business entities. Investment activity is growing. New businesses are opening. The demand for goods, works and services is growing. The economy is picking up.
The main thing is to know when to stop. Otherwise there will be a problem of hyperinflation. Such a rapid depreciation of money will provoke an economic crisis.
Financial and credit conditions
Cash is a limited resource for the population and companies. When business entities lack financial capabilities, they go to commercial banks for loans. However, no one will use money that is too expensive. Simply put, loans are popular when the interest rates are not too high.
The central bank monitors current financial conditions and the availability of monetary resources. If the situation is not favorable, then a decision is made to reduce the key rate. And vice versa. When there is too much money in the economy, the regulator takes the opposite action.
Inflation risks
The Central Bank is forced to look for a middle ground in its policies. A long period during which the refinancing rate remains unchanged, as a rule, negatively affects the financial situation in the country.
As soon as the risk of accelerating inflation becomes too great, the regulator takes adequate measures. The refinancing rate is a tool that can lead to the desired changes in a short time.
Additional features
Any macroeconomic indicator affects many processes. When we talk about the refinancing rate, this statement is even more true. The fact is that the Civil Code of the Russian Federation and a number of other regulations have found several additional ways of using this value.
- The Tax Code provides for the use of this indicator when calculating the amount of fines and penalties in case of failure to comply with the established procedure for paying a tax or fee.
- The refinancing rate also applies when it comes to the use of borrowed funds under an agreement that does not specify interest rates.
- Late payment of wages to company employees entails liability. The amount of compensation to victims is calculated using the indicator under consideration.
- If the state wants to help entrepreneurs, a special program is adopted. The amount of incentive is calculated based on the Refinancing Rate.
Summing up, we can conclude that the use of the described macroeconomic tool is multifaceted. In this case, a pattern should be noted. A reduction in the key rate stimulates the economy, while an increase, on the contrary, slows it down.
The value that allows you to work and build partnerships with credit institutions is called the refinancing rate. Let's try to understand what this is in more detail. The fact is that the Central Bank of the Russian Federation does not cooperate with ordinary citizens directly; it lends money to large commercial banks located in various parts of the state. In this way, the Central Bank compensates for the lack of material resources of small financial institutions. Thanks to lending, they get the opportunity to fulfill the obligations they have undertaken. The size of the refinancing rate determines how much on top of the loan commercial institutions of the Central Bank of the Russian Federation must return. Small banks, having received a loan from the state, lend money to their clients at a higher interest rate.
The refinancing rate is a regulator of the situation in the interbank market
When determining the interest rate, banking institutions take into account the refinancing rate, which subsequently plays the role of a regulator in the interbank market. The interest rate is of great importance when receiving credit money, not only for individuals, but also for legal entities. The higher the rate, the higher the interest on the loan that the borrower must pay. And vice versa, the lower the rate, the lower the interest rate entrepreneurs, businessmen and ordinary people can borrow money from the bank.
Interest and inflation
The size of the refinancing rate directly reflects the state of the state’s economy. It is as close as possible to the inflation rate. If inflation in the country is growing rapidly, then the rate will rise. The Central Bank reports this fact in advance. As soon as the indicator rises, no good should be expected. As a result, it becomes completely unprofitable to take out loans, people have less money, therefore, the demand for goods falls, investments are reduced to zero, and production is reduced. A rate decrease indicates that the country is actively developing. People borrow and invest money in production, which leads to strong growth in the economy as a whole.
World situation
Every country in the world has its own refinancing rate. What kind of indicator this is can be seen from the previous section. In developed countries with powerful economies, the rate is very low. In some situations it may be zero. In some cases, the indicator plays the role of a fiscal meter, which serves as the basis for calculating taxes on income on deposits of both individuals and legal entities, as well as penalties and compensation for delayed wages. The amount of income from interest deposits that is 5% higher than the established rate is also subject to taxation. For every percentage that exceeds this figure, a tax of 35% is levied. Persons who have not paid taxes, fines and other fees must pay a penalty in the amount of 1/300 of the rate for each day of debt. The refinancing percentage is used to calculate the amount of compensation that must be paid to the employer in the event of a delay in wages, a deferment in the payment of vacation pay or fees that are due to employees as a result of dismissal. The amount of debt is 1/300 of the refinancing percentage, which is paid for each overdue day. Here, the fact for what reason the employee was fired is no longer taken into account.
Why is it so important to know the percentage?
All citizens of the country should know the refinancing percentage of the Bank of Russia. The information allows you to determine when you can take out a loan from a bank on the most favorable terms. Knowing this indicator, you can avoid fraud on the part of the bank. And also, if necessary, defend your rights in the judicial authorities. You can find out what the Central Bank refinancing rate is today in the media. The values of this economic indicator are published systematically, regardless of whether it changes or not. The refinancing percentage in different countries is equal to the following figures:
- Russia - 8.25%.
- Switzerland - 0.25%.
- Japan - 0.1%.
- UK - 0.5%.
- Eurozone countries - 0.25%.
- USA - 0.25%.
Important macroeconomic indicator
Federal funds rate, or refinancing percentage, acts as the amount of interest in annual terms that must be paid to the central bank of the state for loans issued by it to credit organizations. This category of loans allows us to ensure and regulate the entire banking system and its liquidity. Even in the absence of funds for lending to the population and fulfilling their obligations, the indicator maintains the solvency of each link in the structure. The macroeconomic indicator of the cost of money makes clear the level of credit availability. As a result, deposit payments may also change. If the rate is high and the inflation rate increases sharply, government authorities increase the rate. Economic development is slowing down. When it is necessary to accelerate the prosperity of the country, the percentage decreases.
Different areas of work
The role of a certain economic benchmark is also assigned to such an indicator as the refinancing rate. Let’s try to explain what it is from this perspective in simple words. Thus, the percentage is set by the Central Bank of the state for a reason, but after a preliminary and detailed analysis of the dominant macroeconomic parameters. This includes GDP, and a forecast for changes in GDP, and inflation, and a forecast for changes in inflation, and liquidity. Moreover, the established percentage itself has a certain impact on economic indicators from a completely different category. This leads to a significant variation in rates depending on the state. When the refinancing rate changes, the Central Bank must strictly follow the maintenance of a balance between the interests of depositors and borrowers. The indicator should remain at a level at which bank deposits will be attractive for depositors, and loans acceptable not only for enterprises and businessmen, but also for the entire population.
Rate in Russia
The Central Bank refinancing rate today is 8.25%, which is quite high and fully shows the situation that has developed in Russia. The indicator belongs to the category of important indicators of the credit policy pursued by the Central Bank. It is used to calculate taxes and penalties, making it the basis for a country's financial policy. The Central Bank refinancing rate was first set in 1992 on April 10. It was customary to call it the discount rate for centralized credit resources. In the period from 1992 to 1998, the profit indicator was equal to the interest on a pawnshop loan. It peaked between 1993 and 1994, ranging from 100% to 210%. Today, the economic indicator has been significantly reduced, and if there are changes, they are practically not noticeable.
Calculation formula
The bank rate (refinancing or key) can be calculated using a specialized formula, which is approved by the Central Bank of the Russian Federation. The indicator itself is an indicator of economic stability. The activities of many government agencies and commercial enterprises depend on it.
The formula for calculating interest is as follows:
Penalty = Amount * Rate /300 * Days
- The amount is the size of the loan.
- Rate - refinancing percentage.
- Days are the length of delay.
Key rate
On September 13, 2013, the board of directors decided to improve monetary policy instruments, such as the refinancing rate. What it was like before is discussed above. Today, the role of the instrument has been reduced, and it is mainly responsible for calculating taxes and performing a fiscal function. The role of the PS was assumed by the key stake. She was chosen from all the bids. The main indicator was considered to be the interest rate on repo auctions lasting 7 days. The calculation of the refinancing rate remained the same, and the value was fixed at 8.25%. The key rate (KR) has become a benchmark for calculating interest on loans by commercial banks. After the Central Bank of the Russian Federation increased the lending rate to 17%, the conditions for lending to the population began to tighten. Based on this, deposits whose income turned out to be higher than 13.25 per annum began to be taxed at 35%. The situation did not meet with approval among the general public, and therefore the government took temporary measures. The bank's rate (previously refinancing, but today the key one) became the root cause of changes in the tax code. In particular, the innovation affected ruble deposits, for which an increase in percentage points is provided from 5 to 10. Thus, until December 31, 2015, deposits in the national currency, the yield of which is less than 18.25%, will not be subject to taxation. At the moment, in Russia there continues to be an active tendency to increase the refinancing percentage, or the key rate, which is a natural consequence of the fading of the country’s economy.
One of the most important indicators of the economic situation in the country is the refinancing rate, the size of which is regulated by the Central Bank in accordance with market conditions. What is this indicator and what exactly does it characterize?
The essence of the refinancing rate
Initially, this indicator was called the discount rate for centralized credit resources, but then changed its designation, but did not change its essence. At this rate, the Central Bank of Russia provides borrowed funds to all credit institutions in the country to ensure liquidity within the entire banking system.
Not used here - interbank loans are issued according to special rules. If there is a lack of funds for current operations and customer service, banks borrow money from the Central Bank of the Russian Federation under the one-day “overnight” program at exactly this rate.
The next change in the refinancing rate is determined by special Instructions of the Bank of Russia by decision of the Board of Directors of the Central Bank of the Russian Federation.
History of refinancing rates in Russia and around the world
In order to find out the current refinancing rate, just visit the corresponding section of the official website of the Central Bank, which reflects the entire history of changes in the indicator.
These statistics of fluctuations in this indicator have been kept since April 1992, when it was introduced by the Central Bank of the Russian Federation at the level of 20%. Then its values experienced many ups and downs. The refinancing rate reached its maximum value of 210 points from October 1993 to April 1994, which is explained by high inflation rates in the country. The minimum - 7.75% was set in the period from June 2010 to February 2011.
In other countries of the world, refinancing rates play a large role in regulating interest rates on retail loans and deposits. In our country, this rate has less to do with refinancing and lending than with taxation, and it affects inflation more than the conditions for the provision of banking products.
Refinancing rates in different countries of the world
| Country | Name of the country's central bank | Baseline name | Bet value | Validity period |
|---|---|---|---|---|
| Australia | Reserve Bank of Australia (RBA) | Cash rate | 2,5% | from 06.08.2013 to 03.06.2014 |
| Belarus | National Bank of the Republic of Belarus | Refinancing rate | 21,5% | from 05/19/2014 |
| United Kingdom | Bank of England | Bank Rate | 0,5% | from 03/05/2009 to 06/05/2014 |
| European Union | European Central Bank (ECB) | Refinancing tender | 0,25% | from 07.11.2013 to 05.06.2014 |
| USA | US Federal Reserve (FED) | Federal Funds Rate | 0,25% | from 12/16/2008 to 06/18/2014 |
| Ukraine | National Bank of Ukraine (NBU) | Discount rate | 9,5% | from 04/15/2014 |
| Sweden | Swedish Central Bank (Riksbank) | Repo Rate | 0,75% | from 12/18/2013 to 07/03/2014 |
| Switzerland | Swiss National Bank (SNB) | 3 Month Libor Rate | 0,00% | from 08/03/2011 to 06/19/2014 |
| Japan | Bank of Japan (BOJ) | Overnight Call Rate Target | 0,1% | from 12/19/2008 to 05/21/2014 |
Currently, the refinancing rate in Russia is 8.25% and has remained at this level since the fall of 2012 in accordance with Bank of Russia Directive No. 2873-u dated September 13, 2012.
Since recently - September 2013 - in Russia the key rate has been used on a par with it, which is now of paramount importance in the domestic economy - all operations to regulate liquidity are “tied” to it. Until mid-June 2014, it was set at 7.5%. By 2016, it should be “brought up” to the refinancing rate and the key rate will finally supplant this indicator.
As a result, the key rate will take the place of the most important economic indicator and become the main basis for inflation targeting. If the country's balance of payments deficit increases, the rate will also increase, and if a surplus occurs, it will decrease.
Where is the refinancing rate used?
This indicator is used not only to determine the fixed cost of interbank loans, but also for other purposes, including:
By the way, interest is charged at the refinancing rate on those loan agreements where the amount of the fee for the use of borrowed funds is not specifically specified.
Any fluctuations in the level of the refinancing rate immediately affect the clients of numerous banking structures - financial organizations, in accordance with the fluctuations, quickly revise the conditions for providing loans (most often) and placing deposits for individuals and corporate clients. The most dependent are credit products with government