Monetary regulation of the Central Bank of the Russian Federation. Monetary regulation
36. Basic instruments of monetary regulation of the economy.
Monetary policy (regulation) is a set of measures to achieve national objectives. The ultimate goal of this activity on the part of the Central Bank is to ensure commodity and monetary security in the economy and stimulate economic activity. growth, achieving national stability. currency and government regulation debt.
According to Federal Law No. 86-FZ “On the Central Bank of the Russian Federation”, the main instruments and methods of monetary policy of the Bank of Russia are:
1) interest rates on Bank of Russia operations;
2) standards for required reserves deposited with the Bank of Russia (reserve requirements);
3) open market operations;
4) refinancing of credit institutions;
5) currency interventions;
6) establishing guidelines for the growth of the money supply;
7) direct quantitative restrictions;
8) issue of bonds on its own behalf.
Interest rates on Bank of Russia operations. This instrument refers to indirect monetary policy instruments. Its widespread use is due to its ease of use. Carried out by changing the level of the % rate at which the Central Bank provides loans to commercial banks. - this is the refinancing rate.
To reduce the lending capabilities of CBs, the Central Bank increases the level of accounting percentage, etc. forces KB. raise fees on your loans. This is credit restriction. As a result, the volume of loans provided to the economy is reduced, because credit becomes expensive and the demand for it falls. In a crisis, the Central Bank lowers the level of loan interest, which stimulates the supply of loans to the economy and leads to an increase in money. masses. This is credit expansion.
Standards for required reserves deposited with the Bank of Russia (reserve requirements). The mandatory reserve mechanism consists of depositing part of the resources attracted by the credit institution in a separate account with the Central Bank of the Russian Federation. These resources are actually blocked during the entire operation of the design office, i.e. they act as an insurance reserve. The mandatory reserve ratio cannot exceed 20% of the KO's obligations. And their change in one direction or another can be made by no less than 5 points. An increase in required reserve standards leads to a direct reduction in the bank's resources for credit investments, which leads to a reduction in the volume of loans and a reduction in money. mass, which corresponds to the restriction policy. Reducing the required reserve requirement frees up resources for the bank. for lending - expansion policy.
Open market operations– transactions for the purchase and sale of government securities. bonds, treasury bills and other government. prices securities, as well as short-term transactions with prices. papers with a reverse transaction. That. crediting of government expenses is carried out and money is issued into circulation. This method is widely used abroad.
During periods of high market conditions, the Central Bank offers CBs to buy prices. securities at rates favorable to them to reduce the lending capacity of commercial banks. During a crisis, the Central Bank creates opportunities for refinancing commercial banks and puts them in a situation where it is profitable for them to sell the government assets in their portfolios. prices paper.
Refinancing of credit institutions. According to the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)” No. 86-FZ dated July 10, 2002, refinancing means lending by the Bank of Russia to credit institutions.
However, the expansion and improvement of refinancing instruments suggests that they combine such operations to regulate the liquidity of credit institutions, such as: loans issued by the Central Bank of the Russian Federation to commercial banks secured by securities and “non-marketable” assets; bilateral SWAP and REPO transactions; deposit operations of the Bank of Russia; placement of Bank of Russia bonds.
Currently, the commercial bank refinancing system is represented by 4 types of loans: intraday, overnight, pawnshop and loans secured by non-market assets.
The choice of refinancing instruments depends on the real situation in the country and the goals of monetary policy. For example, the provision of loans leads to a direct increase in the highly liquid funds of commercial banks used to pay off current obligations, and also ensures the uninterrupted functioning of the payment system, which is especially important for real-time settlements. In conditions of high levels of available funds among credit institutions, the central bank is intensifying operations aimed at sterilizing excess liquidity. Such operations include deposit operations of the Bank of Russia, issue and placement of Bank of Russia bonds
Currency interventions. They represent the participation of the Central Bank in transactions for the purchase and sale of foreign currency in order to maintain the exchange rate of the national currency. If the national rate currency falls, the Central Bank sells foreign currency, which leads to an increase in the national exchange rate. currencies, and vice versa. But currency interventions are a very expensive undertaking, so they are used in emergency cases.
Direct quantitative restrictions. In accordance with the Federal Law “On the Central Bank of the Russian Federation”, in exceptional cases for the purpose of carrying out monetary policy, after consultation with the Government of the Russian Federation, the Central Bank has the right to apply direct quantitative restrictions. These include establishing a limit on the refinancing of banks, restrictions on the types of collateral, establishing a limit on the provision of loans and raising funds for credit institutions, determining the maximum percentage of interest rates on loans, determining the size of commissions for the provision of certain types of services, etc.
Issue of BR bonds. The issue of bonds creates a tool through which credit institutions can invest the available cash balances in their correspondent accounts. As a result, the level of liquidity in the banking sector decreases and, as a result, the money supply in the country decreases. During the circulation process, Bank of Russia bonds can be purchased by holders not only for the purpose of investing temporarily free funds, but also used as a base instrument when making repo transactions or collateral when receiving Bank of Russia loans, since they are included in the Lombard List. Thus, the issue and circulation of Bank of Russia bonds creates an effective mechanism for regulating the money supply in the country
According to the law, the Central Bank develops and implements, in cooperation with the Government of the Russian Federation, a unified state monetary policy. At the same time, he sets the main direction of the economic policy of the Government of the Russian Federation and uses economic levers to regulate the money supply in circulation and direct it to the relevant spheres of the economy O.G. Semenyuta Fundamentals of Banking - p. 72.
The main instruments and methods of monetary policy of the Central Bank are:
- - interest rates on Bank of Russia operations;
- - standards for required reserves deposited with the Bank of Russia (reserve requirements). Required reserve standards cannot exceed 20% of a credit institution's liabilities and can be differentiated for different credit institutions. Required reserve standards cannot be changed by more than five points at a time;
- - operations on the open market (purchase and sale by the Bank of Russia of treasury bills, government bonds and other government securities, short-term transactions with securities with a later reverse transaction);
- - refinancing of banks (lending by the Bank of Russia to banks, including accounting and rediscounting of bills);
- - currency regulation (purchase and sale by the Bank of Russia of foreign currency on the foreign exchange market to influence the ruble exchange rate and the total demand and supply of money);
- - establishing benchmarks for money supply growth;
- - direct quantitative restrictions (setting limits on refinancing banks and conducting certain banking operations by credit institutions).
Monetary regulation carried out by the Central Bank is one of the elements of the state’s economic policy and is a set of measures aimed at changing the money supply in circulation, the volume of loans, the level of interest rates and other indicators of money circulation and the loan capital market. It aims to achieve stable economic growth, low inflation and unemployment. The laws on Central Banks especially emphasize their responsibility for the stability of monetary circulation and the exchange rate of the national currency.
Carrying out monetary policy, the Central Bank, influencing the lending activities of commercial banks and directing regulation to expand or reduce lending to the economy, achieves stable development of the domestic economy, strengthening money circulation, and balancing internal economic processes. Thus, the impact on credit makes it possible to achieve deeper strategic goals for the development of the entire economy as a whole.
Monetary policy is based on the theory of money, which studies, in particular, the process of the influence of money and monetary policy on the state of the economy as a whole. In modern conditions, states with market economic models use one of two concepts of monetary policy:
- - policy of credit expansion, or “cheap” money;
- - policy of credit restriction, or “expensive” money.
The credit expansion of the Central Bank increases the resources of commercial banks, which, as a result of issued loans, increase the total amount of money in circulation. Credit restriction entails limiting the ability of commercial banks to issue loans and thereby saturate the economy with money.
The development of monetary policy by the Bank of Russia is carried out in accordance with Art. 45 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)”. Every year, no later than August 26, the Bank of Russia submits to the State Duma a draft of the main directions of the unified state monetary policy for the coming year and no later than December 1 - the main directions of the unified state monetary policy for the coming year. The project is first submitted to the President and Government of Russia.
The State Duma considers the main directions of the unified state monetary policy for the coming year and makes an appropriate decision no later than the adoption by the State Duma of the federal law on the federal budget for the coming year. This achieves unity of objectives in pursuing monetary and financial policies.
Monetary policy is carried out using certain methods and instruments.
Monetary policy methods are a set of techniques and operations through which the subjects of monetary policy - the Central Bank as a state body of monetary regulation and commercial banks as “conductors” of monetary policy - influence objects (demand for money and supply money) to achieve your goals. The methods for conducting day-to-day monetary policy are also called tactical objectives of monetary policy.
The modern system of monetary policy methods is as diverse as monetary policy itself. Monetary policy methods can be classified according to various criteria.
Direct and indirect regulation of the monetary sphere.
Within the framework of monetary policy, methods of direct and indirect regulation of the monetary sphere are used. Direct methods have the nature of administrative measures in the form of various directives of the Central Bank regarding the volume of money supply and prices in the financial market. The implementation of these measures gives the fastest effect in terms of central bank control over the price or maximum volume of deposits and loans, especially in times of economic crisis. However, over time, direct methods of influence in the event of an “unfavorable” impact on their activities from the point of view of business entities can cause an overflow, an outflow of financial resources into the “shadow economy” or abroad.
Indirect methods of regulating the monetary sphere affect the motivation of behavior of business entities with the help of market mechanisms. Naturally, the effectiveness of using indirect methods of regulation is closely related to the degree of development of the money market. In transition economies, especially in the first stages of transformation, both direct and indirect instruments are used with the gradual displacement of the former by the latter.
General and selective methods of monetary regulation
In addition to dividing the methods of monetary regulation into direct and indirect, there are also general and selective methods of implementing the monetary policy of the Central Bank.
General methods are predominantly indirect, affecting the money market as a whole.
Selective methods regulate specific types of credit and are mainly prescriptive in nature. Their purpose is related to the solution of private problems, such as, for example, limiting the issuance of loans by certain banks or limiting the issuance of certain types of loans, refinancing on preferential terms of certain commercial banks, etc. Using selective methods, the Central Bank retains the functions of centralized redistribution of credit resources. Such functions are unusual for Central banks of countries with market economies. The use in the practice of Central Banks of selective methods of influencing the activities of commercial banks is typical of economic policy pursued at the stage of a cyclical recession, in conditions of a sharp violation of the proportions of reproduction.
At the same time, direct methods of monetary policy are crude methods of external influence on the functioning of money market entities and affect the fundamentals of their economic activity. They may contradict the microeconomic interests of credit institutions, lead to inefficient distribution of credit resources, restrictions on interbank competition, and difficulties in the emergence of new financially stable institutions in the banking market.
Thus, the negative consequences of direct methods of monetary policy often prevail over the advantage of their application in market conditions, since they distort the market mechanism.
Therefore, Central banks of countries with developed market economies have practically abandoned direct methods of monetary policy and resort to them in exceptional cases when it is necessary to take “quick response measures,” for example, in conditions of a sharp development of the economic crisis.
The practice of forming a market economy and its development has proven the low effectiveness of direct methods of monetary policy. As a consequence, there is a widespread displacement of direct methods of monetary policy by indirect ones.
The choice of the type of monetary policy pursued, and, accordingly, the set of instruments for regulating the activities of commercial banks, is carried out by the Central Bank based on the state of the economic situation in each specific case. The main directions of monetary policy developed on the basis of this choice are approved by the legislative body. In this case, it is necessary to take into account the time lag between the implementation of a particular monetary regulation measure and the manifestation of the effect of its implementation. The effectiveness of applying various types of monetary policy is determined by the extent to which the destabilization of money circulation is caused by “purely” monetary, rather than general economic and political factors.
The influence of monetary policy subjects on its objects is carried out using a set of specific instruments. Monetary policy instruments are understood as a means, a way of influencing the Central Bank as a monetary regulatory body on the objects of monetary policy.
The Federal Law “On the Central Bank of the Russian Federation” (Article 35) defines the main instruments of monetary policy:
- 1. Open market operations.
- 2. Standards for mandatory reserves deposited with the Central Bank (reserve requirements).
- 3. Interest rates on operations of the Central Bank.
- 4. Refinancing of credit institutions.
- 5. Currency interventions.
- 6. Establishing guidelines for money supply growth.
- 7. Direct quantitative restrictions.
The range of monetary regulation instruments in the arsenal of central national banks is quite extensive and diverse. It makes sense to classify them according to a number of characteristics. Thus, according to the form of influence, it is customary to distinguish between direct (administrative) and indirect (economic) methods.
The administrative requirements that the central bank imposes on commercial banks include:
- bank liquidity requirements;
- setting upper and lower limits on interest rates;
- rationing of banks' loan portfolios;
- restrictions on the opening of branches and offices;
- determination of the range of operations, types of collateral;
- list of banks admitted to certain types of operations.
The first two direct instruments (required reserves)
and liquidity requirements) are regulatory requirements that can either restrain or increase monetary issuance. The rest relate to methods that hinder the development of banking sector operations.
Indirect (economic) instruments of monetary regulation, in turn, are divided into permanent instruments (refinancing loans, central bank deposits, rediscounting of securities, interest rate corridor) and discretionary instruments (open market operations, credit and deposit auctions, foreign exchange interventions) applied as needed. It should be noted that more than 80% of central banks use standing instruments.
Based on the nature of the regulated parameters, regulatory instruments are divided into general and selective. General instruments affect the capital market as a whole. These are measures of accounting (discount) policy, open market operations, changes in required reserve standards. Selective (selective) methods are intended to regulate lending to certain industries and areas. They are the establishment of quantitative parameters for loans to priority sectors, encouraging the creation of special credit and financial institutions that lend to priority sectors at lower interest rates and enjoy benefits for refinancing at the central bank, and the extension of benefits to banks lending to priority sectors of the economy.
In accordance with Art. 35 of the Federal Law “On the Central Bank of the Russian Federation (Banks of Russia)” the main instruments and methods of monetary policy are:
- interest rates on Bank of Russia operations;
- mandatory reserve requirements;
- open market operations;
- refinancing of credit institutions;
- foreign exchange interventions;
- establishing benchmarks for money supply growth;
- direct quantitative restrictions;
- issuing bonds on one's own behalf;
- other tools.
Let's look at the most important monetary policy instruments.
Depositing required reserves with the Bank of Russia. As is known, banks are required to keep a certain share of attracted resources in the form of required reserves with the Bank of Russia. By officially changing reserve requirements, the Central Bank does not affect the monetary base, but it changes the money multiplier and, therefore, affects the rate of change of the money supply.
Reducing required reserve ratios is an element of stimulating monetary policy and leads to an increase in the multiplier and money supply. Accordingly, the lending capabilities of banks are expanding. An increase in the reserve ratio reduces the value of the multiplier and reduces the money supply, limiting the ability of banks to lend to the economy. Increasing the required reserve standards is one of the generally accepted measures to combat inflation and economic overheating. About 70% of developed countries continue to use reserve requirements. They were abandoned by Australia, Canada, Denmark, New Zealand, Norway and Sweden.
For banks, required reserves are a kind of quasi-tax, because by attracting certain amounts, they can issue loans in a smaller amount. Banks take this circumstance into account in their interest rate policies. The deposit of required reserves with the Bank of Russia is carried out by all credit organizations, with the exception of non-bank collection organizations. No interest is accrued on required reserves deposited by credit institutions with the Bank of Russia. Reserved liabilities are the bank's liabilities in Russian currency and foreign currency. Reserved liabilities include obligations to individuals and legal entities, including obligations of credit institutions to non-resident banks in the currency of the Russian Federation and foreign currency.
However, there are exceptions to the burden of reserves. Thus, in Russia, long-term liabilities are not included in the reserve liabilities - funds raised from legal entities (residents and non-residents) for a period of at least three years, and bonds issued by credit institutions with maturities of at least three years. This encourages banks to attract long-term resources necessary for investment lending.
In addition, non-monetary obligations (in precious metals and natural precious stones, in the form of securities loans) are not reserved; obligations to other credit institutions, Vnesheconombank, the Deposit Insurance Agency, as well as the Bank of Russia; obligations arising between separate divisions of a credit institution.
The Bank of Russia requires strict compliance with the deposit of required reserves. Compliance by a credit institution with mandatory reserve requirements is one of the criteria for a credit institution’s admission to refinancing with the Central Bank. If the standards are not met, the Bank of Russia applies penalties.
As is known, mandatory reserves mean that the amounts in these accounts are not available to banks as resources for lending and other active operations, i.e. With this, the amounts are, as it were, seized by the Central Bank. The question arises: can a bank ever use them? This occurs after the revocation (cancellation) of the Bank of Russia’s license to carry out banking operations, when the required reserve funds are transferred to the bank’s correspondent account and then used in the prescribed manner.
Depending on changes in the macroeconomic situation and the state of banks' resources, central banks can change required reserve ratios and differentiate them.
Thus, in the UK the required reserve ratio is 0.45%, in Japan - from 0.125 to 2.5, in Switzerland - 2.5, in Germany - from 4.14 to 12.1, in France - from 3 to 5, 5, in Spain - 17, in Italy - 25%. In the United States, the Federal Reserve's reserve requirements for transaction accounts (demand accounts) fluctuate depending on the size of the account from 0 to 10%. Term accounts of enterprises and obligations to non-residents are not subject to reservation. In many countries, upper levels of reserves are legally limited.
In Russia, the required reserve ratio was set at different levels in different years (the maximum level of 22% for demand accounts was set in 1995). Then it consistently declined, fluctuating across various accounts. During the crisis of 2008, the Bank of Russia sharply lowered standards in order to provide banks with liquidity, and in 2009-2011. began to increase them again. Currently, the reserve rate for obligations to non-resident legal entities, individuals and other obligations in Russian currency is 5%; for obligations to non-resident legal entities and other obligations in foreign currency - 7%; for obligations to individuals in foreign currency - 6%.
A number of countries have introduced fines for banks’ failure to comply with required reserve requirements (Germany, France, Japan, Russia). Some countries have introduced payments by central banks for bank reserves - in Sweden in the early 1990s. the central bank paid banks an income of 6% per annum for excess reserves (similarly in Spain, Italy, Finland).
Interest rates. Interest rates are the next extremely important tool of monetary regulation. Interest rates are subject to regulation by central banks. By setting rates for its operations, the central bank sets a benchmark for all other rates in the economy (credit, deposit, rates of return on government and corporate securities, etc.). By changing rates, the monetary authority thereby influences economic activity. Through the interest rate channel, it is possible to indirectly influence the decisions of economic entities on consumption, savings and investment and thus influence the level of aggregate demand, economic activity and inflation. An increase in interest rates leads to a decrease in business activity, a decrease in inflation and an appreciation of the national currency. Lowering interest rates has the exact opposite effect.
In the global economy, a generally recognized role is played by the so-called key interest rates - these are the rates of central banks of leading countries and the rates of the world money market. In the context of financial globalization, they are important, not only in the area of their origin, but also for all participants in cross-border financial and credit flows.
To stabilize the money market, central banks of a number of countries use an interest rate corridor system (interest rates conidor system), or "channel system" (channel system). The interest rate corridor is formed by the maximum interest rates for refinancing and the minimum interest rates for absorbing liquidity. All other bets are within the corridor. Central banks, using the rate corridor, can tighten or soften monetary policy, moving the corridor up or down, keeping its width unchanged. To effectively manage the price of resources in the interbank market, the interest rate corridor must be quite narrow. Keeping rates within the interest rate corridor and avoiding excessive volatility of interest rates in the money market is called a fine-tuning mechanism. Currently in the Russian Federation, the upper limit of the corridor is the overnight loan rate of 10.25%, and the lower limit is the overnight deposit rate of 8.25%.
Among developed countries, the interest rate corridor system operates in Australia, Canada, Iceland, Sweden, Norway, New Zealand and the eurozone. Some central banks of developing countries and countries with economies in transition also maintain interest rate corridors. These countries include the Czech Republic, Hungary, Slovakia, India, Brazil, Egypt, Qatar, Thailand, Sri Lanka, and Nigeria.
The Bank of Russia interest rate system includes rates on credit and deposit operations of the Bank of Russia carried out with credit institutions. Recently, the central bank has simplified its line of interest rates by eliminating some types and unifying the maturity of rates. In September 2013, the key rate was introduced - an indicator of the direction of monetary policy. This became a single rate for main market operations (the rate for weekly repo auctions and deposit auctions) for a period of 1 week. Naturally, it is floating. Carrying out operations to regulate the liquidity of the banking sector, the Bank of Russia strives to maintain overnight money market rates close to the key rate, which was 9.25% in the first half of 2017.
Interest rate policy depends on the balance between the risks of increased inflationary pressure and slower economic growth. After the crisis in 2009-2010. Interest rates were reduced several times in order to ensure the availability of credit for the real sector of the economy and the restoration of domestic demand. In 2011-2014 interest rates on Bank of Russia operations began to rise. The reasons are increased inflation, devaluation of the ruble, and increased capital outflow. In 2015-2017 rates began to slowly decline in response to lower inflation. In 2018-2019 Upon reaching the inflation target of 4%, the Central Bank expects to maintain the key rate at 7-8%.
It is the management of interest rates that is becoming the most important instrument of monetary regulation for Russia. This is due to the transition to inflation targeting and a free floating regime for the national currency.
In addition to mandatory reserves and interest rates, the Central Bank also uses other instruments to influence the money supply. They can be divided into two groups - instruments for providing liquidity, i.e. refinancing of banks, and instruments for absorption (sterilization) of liquidity. It is obvious that the first group of methods is used with a soft policy, the second - with a tougher one. Let's present them in a more specific form (Table 13.2).
Refinancing of credit institutions. Let us consider in more detail the mechanism of refinancing (lending) by the Bank of Russia to credit institutions. When refinancing, the Central Bank acts as a lender of last resort (creditor of last resort). When a loan is provided to a commercial bank, the liability part of the Central Bank's balance sheet increases, and the total reserves in the banking system increase. At the same time, the assets of the Central Bank increase by the amount of the loan. Thus, an increase in refinancing volumes increases the volume of borrowed reserves in the banking system, the monetary base and money supply, while its reduction decreases it.
Table 13.2
Monetary regulation instruments
|
Providing liquidity |
Liquidity absorption |
|
Overnight loans |
Deposits of credit institutions with the Bank of Russia:
|
|
Direct REPO operations:
|
Sale of government securities without repurchase obligation |
|
Lombard loans at a fixed rate |
Sale of debt securities (bonds) of the Bank of Russia |
|
Currency swap transactions with the Bank of Russia |
|
|
Gold-backed loans |
|
|
Loans secured by non-marketable assets or guarantees, including on an auction basis |
Refinancing can only be effective if the following principles are observed. Borrowing from the Central Bank should be available only to solvent credit institutions. The collateral for loans must be real and liquid, loan rates must be higher than market rates, so that there is no desire to use them to finance current activities. Finally, the Central Bank must clearly indicate the availability of its resources to banks that meet the criteria and have the required collateral. After the financial crisis, the concept of a lender of last resort is slightly modified - emergency lending should be provided primarily to systemically important financial institutions and not at the highest rates. Requirements for the quality of collateral must take into account, in addition to the systemic importance of the borrowers, the depth of stress of the entire national financial system.
The bank refinancing mechanism includes two groups of credit transactions depending on the collateral used and the conclusion mechanism:
- lending secured by (blocking) securities from the Lombard List of the Bank of Russia;
- lending secured by bills of exchange, rights of claim under loan agreements of organizations in the sphere of material production or guarantees of credit organizations.
Assets securing pawn loans are listed in the Lombard List of the Bank of Russia. In the collateral structure, the largest share falls on government bonds, which confirms their status as the most reliable assets. The pawnshop list is constantly being updated. Thus, after the crisis, the Bank of Russia expanded the list of assets to include mortgage-backed bonds, the issuer’s obligations secured by the joint guarantee of the Housing Mortgage Lending Agency OJSC and bonds of issuers - systemically important organizations (list approved by the Government of the Russian Federation), included in the quotation list at least one stock exchange in the Russian Federation, regardless of whether the issuers have an international rating. Gold in standard or measured bars can also serve as collateral.
Securities (except for government securities and Eurobonds) must be admitted to circulation on the Moscow Exchange, Eurobonds must be listed on the stock exchanges of developed countries. The Bank of Russia is making it easier for banks to access liquidity by lowering the rating requirements for securities on the Lombard list. The minimum rating of securities must be no lower than BB/Ba2 (according to Standard & Poor’s, Fitch Ratings or Moody’s Investors Service classification).
The regime for refinancing secured in the form of loans with state guarantees to strategic enterprises (226 of them), even without the corresponding ratings, has been simplified. New (targeted) refinancing instruments include loans to banks with a capital of at least 100 billion rubles. for a period of up to three years at a key rate of -1.5 percentage points, i.e. pledge of investment projects for the development of import substitution. Specialized refinancing programs are being implemented to stimulate lending to small and medium-sized businesses, project financing, non-resource exports, and military mortgages.
A popular form of refinancing is direct repo transactions. This is the market fine-tuning tool most in demand by banks. REPO transaction in general form (from English, repurchase agreement)- this is a transaction for the purchase (sale) of a security with the obligation to resell (purchase) after a certain period at a predetermined price. A direct repurchase agreement is a sale by a bank to the Bank of Russia of securities with an obligation to repurchase. Essentially, this is a short-term loan to a bank from the Bank of Russia secured by securities. Direct repo transactions are conducted on an auction basis and at a fixed rate. Participants in repo auctions with the Bank of Russia can only submit competitive bids (indicating the rate). The Bank of Russia sets the maximum amount of funds provided at the auction, as well as the minimum interest rate.
At a fixed rate, you can get a direct loan for a period of 1 day at a rate exceeding the minimum interest rate established for auction repo operations. The Bank of Russia does not set limits for these operations.
The opposite of direct repo operations are reverse modified repo operations, which are a tool for absorbing liquidity. This is the sale of securities held in the central bank's portfolio to commercial banks with the right to repurchase. In Russia, these operations have not been used since 2004.
As an example of a flexible central bank policy, mention should be made of an atypical, one-time, discretionary instrument - unsecured loans used during the crisis. In Russia in 2008, 192 banks with established ratings from leading international and Russian agencies received unsecured loans worth 6.58 trillion rubles. After the situation stabilized in 2011, the Bank of Russia suspended the institution of unsecured lending for all periods due to a sharp reduction in demand, which does not exclude the resumption of issuing such loans if necessary.
The refinancing channel is also the “foreign exchange” and “swap with gold” operations. They have been used in Russia since September 2002. Their essence is that the central bank purchases foreign currency for Russian rubles for a period of “today” at the current official exchange rate of foreign currency to the Russian ruble (base rate) with its subsequent sale for a period of “tomorrow” at a rate equal to the specified base rate, increased by the swap difference. In essence, this is a one-day loan secured by currency (gold). Currency swap transactions are concluded by the Bank of Russia at the Unified Trading Session of the Moscow Exchange or on the over-the-counter market with counterparty banks of the Bank of Russia on the domestic foreign exchange market.
This is how the refinancing system works. Currently, loans from the Central Bank of the Russian Federation to the banking system account for less than 2% of its total assets. The refinancing system should be built on the principles of equal and widest possible access for banks to Bank of Russia instruments. At the same time, lending should have sufficient flexibility to allow obtaining a loan according to clear criteria in a short time with adequate collateral, with the provision of minimal information from the bank.
It makes sense to expand the use of General Loan Agreements between the Main Territorial Directorates of the Central Bank of the Russian Federation and banks to quickly obtain loans without additional registration of one-time transactions. It is also important to expand the list of assets accepted as collateral, and in the future - to create a single pool of collateral (securities from the Lombard List of the Bank of Russia, bills of exchange, rights of claim under loan agreements, precious metals and other types of assets).
In Russia, there is also an additional, in addition to refinancing, channel for providing liquidity to banks - operations to place temporarily free federal budget funds on deposits with credit institutions on a tender basis. Deposit auctions are held through currency exchanges, and several dozen banks have access to them, including VTB, RSHB, VTB24, Gazprombank. Providing collateral financing to banks reduces budget risks when placing funds in banks and, as a result, significantly expands the range of banks that can receive such financing.
The opposite of refinancing is absorption of liquidity (sterilization), g.s. mechanism for its withdrawal. The Bank of Russia resorts to absorption in a situation of a stable liquidity surplus, which banks are unable to transfer to the real sector of the economy. As a rule, the sterilization mechanism is used if it is necessary to cool the economy within the framework of tight monetary policy. Under these conditions, the following instruments are used: the issue and placement of bonds of the Bank of Russia, deposit operations, bank deposits with the Central Bank on a permanent and auction basis.
The most popular instrument is Bank of Russia deposits. Unlike selling securities on the open market, they do not reduce the monetary base. Deposits tie up banks' excess reserves, holding back money supply growth. At the same time, specific requirements are put forward for credit institutions - counterparties of the Central Bank of the Russian Federation. The bank must be included in the first or second classification group (banks without violations or with certain shortcomings), comply with the mandatory reserve requirements of the Bank of Russia, and have no overdue monetary obligations to the Central Bank of the Russian Federation.
Banks can use deposits as a standing instrument, when funds are placed at fixed interest rates, and on a market basis as a fine-tuning instrument - when conducting deposit auctions at interest rates determined on a tender basis.
The next transmission mechanism is open market operations (OOP), well known in the practice of central banks of many countries. They are a flexible, mobile, operational tool for regulating money supply and credit through their influence on the reserve base of the banking system. In the open market, transactions take place between the central bank and credit institutions for the purchase and sale of securities. The central bank sells securities from its own portfolio when there is an excess money supply, i.e. within the framework of a restrictive monetary policy, and buys when there is a lack of money supply, i.e. with expansionist policies.
In open market operations, the central bank acts as an equal counterparty to credit institutions, in contrast to its more stringent regulatory position in other situations, for example, when refinancing, applying required reserves.
According to Art. 39 of Federal Law No. 86-FZ “On the Central Bank of the Russian Federation (Bank of Russia)”, open market operations of the Bank of Russia are understood as:
- purchase and sale of treasury bills, government bonds, other government securities, bonds of the Bank of Russia, as well as concluding repurchase agreements with these securities;
- purchase and sale of other securities determined by a decision of the board of directors, subject to their admission to trading at stock exchanges and (or) other organizers of trading on the securities market, as well as the conclusion of repurchase agreements with these securities.
Government securities, government-guaranteed securities, and, less commonly, corporate securities are traded on the open market. In particular, in Russia, ruble government securities are traded on the market - federal loan bonds (OFZ), government savings bonds (GSO), as well as securities denominated in foreign currency - Eurobonds, domestic government currency loan bonds (OVGVZ). It is important to emphasize that the purchase of government securities by the Bank of Russia can only be carried out on the secondary market. This is necessary in order to limit the possibilities of direct emission financing of the budget, which could provoke inflation.
There are two options for carrying out operations. The first is fixing the rate, upon reaching which the central bank offers any number of securities (or offers a certain number of securities). The second option is to fix the rate, upon reaching which the central bank buys any offered volume of securities (or determines the number of securities that it buys regardless of the supply rate). Thus, either the central bank, wanting to withdraw (increase) the amount of liquidity, sells (buys) a certain amount of securities and leaves the banks the right to offer the interest rate, or it sets the interest rate and allows the banks to determine the amount.
Open market operations are used in the practice of most central banks. Banks of England, Japan, and the US Federal Reserve use them as an anti-crisis tool to replenish banking liquidity and (or) influence the long-term yield of government and corporate bonds. In Russia, open market operations are used on a relatively small scale and irregularly as an additional tool for regulating bank liquidity. The reason for this is the relative narrowness and low liquidity of the national stock market.
An alternative channel for sterilizing liquidity is transactions with the Central Bank’s own securities, i.e. issue of bonds of the Bank of Russia (OBR) and their sale to commercial banks. As is the case with deposit operations, the issuance of OVR, unlike the sale of securities on the open market or reverse repo transactions, does not reduce the monetary base, but rather binds up the excess funds of credit institutions, restraining the growth of the money supply.
The Bank of Russia has the right to issue bonds, but this has not been practiced since 2010.
The issue of bonds by the Bank of Russia is essentially a special case of open market operations. By issuing its own securities, the central bank solves the problem of the shortage of objects of operations on the open market. Bonds of the Bank of Russia are issued in the form of zero-coupon discount bonds. They are included in the Lombard List of the Bank of Russia and are accepted as collateral for Bank of Russia loans secured by collateral (blocking) of securities, and direct repo operations of the Bank of Russia. Unlike deposit operations, Bank of Russia bonds have longer maturities and higher interest rates. Bank of Russia bonds can be freely circulated on the secondary market and used as collateral when receiving Bank of Russia loans.
Different central banks issue different types of debt - debt certificates (European Central Bank, Bank of the Netherlands, National Bank of Denmark, Bank of Spain), financial bills (Bank of England, Swedish Riksbank, German Bundesbank, Bank of Japan), bonds (Bank of Korea, Central Bank Chile). However, most central banks refuse to issue their own securities. This is due to the desire to avoid market fragmentation, to support government securities as a basic benchmark for financial market participants. Central banks try not to interfere unnecessarily in the sphere of financial intermediation. By choosing government securities rather than their own as the object of operations on the open market, central banks maintain their independence and avoid accusations of disloyalty and protectionism towards individual issuers.
The list of main instruments of monetary regulation is completed by foreign exchange interventions. In accordance with Art. 41 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)”, currency interventions of the Bank of Russia are understood as the purchase and sale of foreign currency by the Central Bank of the Russian Federation in the foreign exchange market to influence the ruble exchange rate and the total demand and supply of money. In fact, foreign exchange interventions are an analogue of the Central Bank's operations on the open market, only here the object is not securities, but foreign currency. The mechanism of foreign exchange interventions is practically no different from open market operations: the sale of currency by the Central Bank reduces bank reserves, the purchase increases it.
Currency interventions are carried out as needed, i.e. they are an instrument of discretionary rather than permanent action. The volume of targeted interventions is determined based on the state of the country's foreign trade balance, the dynamics of world energy prices, capital and credit movements. As a rule, the purpose of intervention is to neutralize negative exchange rate expectations of foreign exchange market participants. Often, currency interventions are carried out by the Bank of Russia with a reserve, in excess of the established target volume, which makes it possible to smooth out sharp fluctuations in the ruble exchange rate, which do not depend on fundamental economic factors and are harmful to the economy. The Bank of Russia also carries out transactions for the purchase (sale) of foreign currency related to the replenishment (spending) of sovereign funds by the Federal Treasury.
Currently, in conditions of free exchange rate formation, the Bank of Russia does not carry out foreign exchange interventions. But this does not exclude the possibility of conducting targeted operations. The interventions do not contradict the concept of a floating exchange rate regime and are successfully used by developed countries if necessary.
In Russia, it is legally established that the main tools and methods of monetary policy of the Bank of Russia are the following:
1) interest rates on Bank of Russia operations;
2) standards for required reserves deposited with the Bank of Russia (reserve requirements);
3) open market operations;
4) refinancing of credit institutions;
5) currency interventions;
6) establishing guidelines for the growth of the money supply;
7) direct quantitative restrictions;
8) issue of bonds on its own behalf.
The main instruments of the credit policy of any central bank (CB) are: open market operations, changing and establishing the required reserve ratio, changing the discount rate (monetary policy).
Operations on the open market, or on the secondary market for treasury securities, are currently the main instrument for regulating the money supply in global economic practice. Open market operations mean the purchase and sale by the Bank of Russia of treasury bills, government bonds, other government securities, Bank of Russia bonds, as well as short-term transactions with these securities.
By buying or selling Treasury securities on the open market, the central bank can either inject reserves into or withdraw reserves from the government's credit system. The purpose of this policy is to regulate the credit resources of commercial banks.
In the interests of maintaining or restoring balance in the economy, the Central Bank sometimes imposes its policies on other banks. Its essence lies in the fact that the central bank places (in a situation of excess money supply in circulation) or buys (in a situation of shortage of money supply) government securities and thus regulates the supply of money in the money market. At the same time, banks cannot refuse to purchase the offered securities.
The Bank of Russia's open market operations are aimed at regulating the liquidity of the banking system to achieve monetary policy goals. Open market operations are usually carried out through auction sales and are more effective during periods of rising inflation.
Establishing standards for required reserves of commercial banks. The standard for required reserves deposited with the Bank of Russia is the amount of required reserves established by the Central Bank as a percentage of the reserved liabilities of a credit institution. The state obliges all banking institutions to keep a certain part of their own and deposited funds in the accounts of the central bank, which, depending on the state of the market and the goals of state regulation of the economy, periodically changes the norms of minimum reserves.
Reserve requirements are applied to regulate the overall liquidity of the banking system and control monetary aggregates by reducing the money multiplier. In Fig. 4.3 shows a schematic diagram of the operation of this regulatory tool.
Establishing norms of required reserves solves economic (ensuring minimum guaranteed stability of the banking system), social (providing guarantees against the complete ruin of depositors) and other tasks. The storage of mandatory minimum reserves in the Central Bank of the Russian Federation was introduced in 1990. This instrument of monetary policy is the most powerful, but rather crude, since it affects the foundations of the entire banking system.
Currently, the US reserve ratio is 12%. In Russia, regulation of the amount of required reserves is carried out by the Bank of Russia on a monthly basis. Required reserve standards cannot exceed 20% of a credit institution's liabilities and can be differentiated for different credit institutions.
Interest rate regulation is a change (policy) of the discount rate, i.e. regulation of interest on loans from commercial banks from the central bank. The discount rate is the interest rate at which the Central Bank lends to commercial banks or buys their securities.
The Bank of Russia uses interest rate policy to influence market interest rates. The Central Bank, with its discount rate, determines the lower limit of the bank interest rate. Reducing it makes borrowing cheaper for commercial banks, and they are eager to get credit. At the same time, excess reserves of commercial banks increase, causing an increase in the amount of money in circulation. Conversely, an increase in the discount rate makes borrowing unprofitable. Moreover, some commercial banks that have borrowed reserves are trying to return them, as they are becoming very expensive. A reduction in bank reserves leads to a reduction in the money supply. Low interest rates stimulate demand for loans and lead to a revival of economic activity.
The Bank of Russia's interest rate system largely corresponds to world practice. The system includes the refinancing rate and rates on credit and deposit operations of the Bank of Russia carried out with credit institutions. Economic growth in Russia in recent years with a relatively low level of inflation indicates the rationality of the current level of interest rates.
At the same time, to increase the influence of monetary policy in ensuring economic development, it is necessary to expand the role of bank credit in satisfying the demand for money, which will make it possible to give interest rates more significant functions in regulating economic activity.
The refinancing rate plays an important role among the Bank of Russia interest rates. At this rate, the Bank of Russia lends to commercial banks. The refinancing rate, which changes depending on the economic situation, performs a signaling function, providing money market participants with information about the Central Bank’s assessment of the current level of inflation and the prospects for its development, and thereby influencing the inflation expectations of business entities. However, the purpose of this rate is not to promptly influence changes in the current situation in the interbank market. For 1992-2005. the refinancing rate changed many times and within wide limits: from 210% (October 1993) to 12% (December 2005).
The Lombard rate is used to obtain funds against highly liquid financial assets. The Central Bank of the Russian Federation conducts pawnshop auctions. The rate for pawnshop auctions, due to the sufficient level of liquidity of commercial banks, also does not yet significantly affect the rates of the interbank credit market. In these conditions, the most significant role is played by the rates on deposit operations of the Bank of Russia and operations on bonds of the Bank of Russia with commercial banks, as a result of the use of which free banking liquidity is absorbed.
Indirect economic methods and instruments of monetary regulation are divided by central banks based on two main characteristics. During the first classification, depending on the essence of the operation, the following groups are distinguished.
1. Tools emission policy, determining the volume of money supply, include both instruments of money emission and anti-emission ones (to “sterilize” the money supply).
The main issuing instruments of the central bank include:
Refinancing of banks in order to regulate the current liquidity of the banking system secured by securities, as well as their rediscounting in banks’ portfolios (usually bills of exchange);
- purchase of foreign currency to maintain current liquidity of banks and influence the exchange rate;
Budget deficit lending;
Participation in the authorized funds of banks;
Funding for banks in emergency situations.
Central banks use the following anti-emission instruments:
Attracting bank resources to the required reserve fund;
Sale of foreign currency;
Attracting bank resources to paid deposits of the central bank;
Issue of short-term securities of the central bank, etc.
2. Tools interest rate policy, affecting the cost of credit resources provided to banks, the volume and structure of the money supply, the level of liquidity of banks, etc. Among the main instruments of interest rate policy of central banks, the following should be noted:
Refinancing rates, the level of which takes into account the dynamics of inflation and the direction of monetary policy (toward credit restriction or expansion) and thus serves as a guideline for market participants;
Discount rates used when carrying out transactions for rediscounting bills of legal entities (determined based on the base refinancing rate);
Rates for the main (standard) operations of the central bank (in particular, for operations regulating bank liquidity);
Rates for non-standard transactions (soft loans, etc.).
3. Minimum reserve requirement policy, affecting the banking and money multipliers, the level of liquidity.
The second classification of methods and instruments of monetary regulation is based on their grouping based on the role of the central bank (its initiative) in carrying out operations to maintain or withdraw liquidity.
Open market operations are carried out by the central bank on its own initiative and are fundamental in terms of operational management of the money market (stabilization of short-term interest rates and bank liquidity), as well as short- and medium-term monetary policy.
These transactions may be carried out in accordance with pre-announced trading sessions (including auctions) or at the discretion of the central bank. The following types of open market operations are distinguished:
Regular scheduled operations, the implementation of which is announced in advance (loan or deposit auction);
Irregular transactions carried out when the need arises, for example, unexpected short-term disturbances in the economic equilibrium. At the same time, irregular scheduled operations are distinguished (the time of execution is unknown in advance) and bilateral operations (other banks are not informed at all).
According to the purpose of conducting open market operations, they consist of:
Corrective (protective) operations to compensate for short-term undesirable changes in the structure of bank reserves;
Structural operations aimed at long-term qualitative impact on the monetary sector.
Permanent mechanisms for regulating liquidity of the banking system (constantly available instruments) used by banks without obtaining the consent of the central bank. When the need arises, banks have automatic access to central bank liquidity without the latter's consent or initiative. Thus, this method of monetary regulation is applied at the initiative of banks when carrying out relevant operations.
In turn, obtaining the required result is a criterion for the effectiveness of the methods and instruments of monetary regulation used by the central bank.
Questions for self-control
1. What criteria are used to classify the objectives of monetary policy?
2. Name the hierarchy of monetary goals.
3. What aspects can act as tactical goals?
4. Describe the stages of the process of developing monetary policy goals.
5. Types of monetary regulation, their characteristics.
6. Name the main advantages and disadvantages of using administrative instruments of monetary regulation.
7. Classification of monetary regulation instruments.
8. What instruments of monetary regulation used in the Republic of Belarus can be classified as economic instruments of monetary regulation?
9. What changes in the policy of minimum reserve requirements of the National Bank of the Republic of Belarus have been noted recently?
10. Name the structure of operations on open markets in the Republic of Belarus.
11. The essence of the foreign exchange intervention policy.
12. Instruments of interventionist policy.
13. Principles of foreign exchange interventions.
14. The essence of the central bank's accounting policy.
15. Dependence of the choice of types of monetary regulation on impact priorities.
16. Characteristics of the monetary methods used by the National Bank.