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.

Refinancing rates of the Central Bank of the Russian Federation
Federation

Validity	%	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 July 7, 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%.

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

A country	Name of the country's central bank	Baseline name	Bet value	Validity
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
Great Britain	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

Recently, the following trend has been observed: more and more people are interested in the economy, as they directly observe the impact of its laws and indicators on the current situation of both the country as a whole and individually each of its citizens. Modern conditions require access to a large amount of information, mainly thanks to the Internet. In order to understand exactly what is being discussed in the next news release, they will answer the question: refinancing rate - what is it in simple words? You can find out the answer from this article.

Refinancing rate - what is it in simple words: definition and features

The concept of a refinancing rate was introduced quite a long time ago. However, in recent years it has lost its influence as the key bet took over. However, a number of functions remained behind this instrument of monetary policy. This is a kind of indicator that serves as a determinant of the value of money in the country. It can be stated that the refinancing rate, in simple words, is an interest rate, the size of which determines the conditions under which Russian banks will cooperate with the population in relation to loans and deposits, since it is with this in mind that commercial banks receive credit resources from the Central Bank of the Russian Federation. If a commercial bank is able to obtain borrowed funds at 10% per annum, it can offer them to the public at 15% or 17%, with the difference being its profit. The higher the rate set by the Central Bank, the more the population will have to overpay for using the money of the servicing bank.

There are two main reasons that force banks to apply to the Central Bank of the Russian Federation for loans:

• the need to repay an existing loan, the terms of which are less favorable;
• the desire to receive funds that will increase the loan term.

The name of the rate itself indicates its initial value, because loan refinancing is, in simple words, the receipt of borrowed funds to pay off current debt, as a result of which new loan obligations arise, but on more favorable terms.

Additional functions performed by the refinancing rate

The refinancing rate also influences other processes in the economy. It is used if there is a need to display the overall efficiency of processes occurring in the country’s economy. It is worth noting that the rate is calculated not only on loans, but also on deposits. Moreover, its size plays a role in calculating the level of profitability of deposits at which it is not subject to tax (personal income tax definition).

In addition, the concept of refinancing rate can be found in such areas.

• In the Tax Code, where it is included in the calculation of the amount of fines and penalties for non-compliance with the procedure for paying established taxes and fees.
• It may be noted that the refinancing rate is used in situations where borrowed funds or value under loan agreements have been used, but interest is not specified.
• The liability that arises in case of late payment of wages to employees is also measured based on the established refinancing rate.
• This value is used when calculating special payments aimed at providing support to entrepreneurs.

Thus, we can conclude that such an indicator as the refinancing rate plays an important role in many ongoing economic processes. In general, it can be noted that its decrease has a stimulating function.

Current refinancing rate of the Central Bank of the Russian Federation for 2019

Today the current refinancing rate is 7.5% per annum.

There are several areas that are affected by the Central Bank's real refinancing rate:

• The amount of tax on income from a bank deposit.
• The amount of compensation for the employer’s financial liability to the employee in a situation of delayed payment. If the salary was not paid on time, the employer is obliged to compensate for the costs (pay a penalty) in the amount of at least one three hundredth of the refinancing rate of the Central Bank of the Russian Federation for each day of delay.
• The amount of monetary penalty for late payment on a loan.

There is data on the refinancing rate for 2019. The Central Bank, however, does not publish this information on the official website. In January 2016, it was decided that the refinancing rate would not be set by the government. In the table below, the rate in force in some years is compared with the inflation rate. Since the refinancing rate often changed several times a year, the table shows data at the end of each year.

Central Bank refinancing rate by year

	Inflation rate	Central Bank refinancing rate

The refinancing rate of the Central Bank of the Russian Federation is the rate on loans provided by the Central Bank and credit institutions. At this interest rate, loans are provided to commercial banks as refinancing.

Click to enlarge

Before finding out what a refinancing rate is, you need to understand what a loan refinancing is.
Refinancing by the Central Bank is the issuance of loans and credits by the Bank of Russia to credit institutions operating in Russia. This definition is given in Art. 40 of the Law “On the Central Bank of the Russian Federation” dated July 10, 2002 No. 86-FZ.
Refinancing itself, as a banking term, is the repayment by the borrower of an old, existing loan at the expense of a new one. In this case, the borrower pursues the following goals:

• Repay an existing loan with a higher interest rate with a new loan with more favorable credit conditions, in particular with a low interest rate;
• Obtaining a new loan in order to extend the total loan term.

Why do you need a refinancing rate?

The refinancing rate is the most important instrument of monetary policy of the Central Banks of all countries. Its change leads to changes in interest rates on all loans in the country, changes in the volume of financial transactions in the market and the attractiveness of the national currency.
It is worth highlighting three areas of application of the refinancing rate of the Central Bank of the Russian Federation:

• The interest rate at which the Bank of Russia issues loans to commercial banks in our country. Previously, loans to banks were issued at a refinancing rate for a period of 1 day. This type of loan was called “overnight”.

Currently, the Central Bank of the Russian Federation does not lend to commercial banks using the refinancing rate. The interest rate on such loans is calculated by the Central Bank of the Russian Federation using other banking instruments and ranges from 5.5 to 6.5%. The longer the loan term to a commercial bank, the lower the interest rate.

For permanent operations, where the lending term ranges from 1 to 1 week, the lending rate of the Central Bank of the Russian Federation is 9 - 9.5%, and for open market operations, with a period of 1 week to 1 year - 8 - 8.25%, that is, within the key rate and the refinancing rate.

• The value of the Central Bank of the Russian Federation rate characterizes the economic situation in the country and reflects the efficiency of economic processes.

First of all, the value of the refinancing rate affects changes in interest rates on deposits. You can use the deposit calculator on bank websites to find out how the final deposit amount will change with a change in the refinancing rate in one direction or another.

Banks attract funds using interest rates for household deposits that are slightly lower than the established refinancing rate, and issue funds at higher rates. This is the direct profit of the banks.
A rate reduction leads to stimulation of the country's economy as a whole. If the Central Bank of the Russian Federation reduces the refinancing rate, for example, to 2%, then a mortgage loan will most likely be available at a rate of 4–5% per annum. As a result, there will be a “boom” in the real estate market. But this will lead to an increase in inflation.

If the Central Bank of the Russian Federation increases the refinancing rate, this will slow down the development of the country’s economy. Loans will become unavailable to many individuals and legal entities. This will lead to a decline in production, trade and other areas of business.
But, in the history of our country there were moments when an increase in the refinancing rate led to an increase in inflation, and vice versa. It is worth recalling the history of our country, when from September 1993 to April 1994, the refinancing rate was equal to 210% per annum, and the inflation rate was 215.4%. But this was most likely caused by the instability of the political situation in the country.

• The refinancing rate values ​​are used to calculate fines and penalties for various late payments to the country’s budgets. This applies to both legal entities and individuals. This value is also used when providing compensation payments to support small businesses, to provide an investment tax credit, and more.

If an enterprise or individual entrepreneur has debts on taxes and fees, then fines and penalties are charged for each day of delay, based on the refinancing rate. This value is considered optimal for calculating penalties.
For example, for late tax payments, “a fine is charged in the amount of 1/300 of the refinancing rate of the Central Bank of the Russian Federation for each day of delay.”

History of changes in the refinancing rate

The decision to change the refinancing rate is made by the country's Central Bank. Today the rate is 8.25%, and it has not changed for the last few years, namely since September 2012.
If we take the time period from the beginning of the 2000s to the present day, then the minimum value of the refinancing rate was from June 2010 to February 2011. It was equal to 7.75%.

The highest value – 55% – was noted in the early 2000s. But during this period the country’s economy was quite unstable. Over the past 5 years, the refinancing rate has remained at around 8%, which indicates the stability of the financial market of our country.

Since the fall of last year, 2013, the Bank of Russia introduced such a concept as the key rate. Now it is of paramount importance, and by the beginning of 2016 they plan to “pull up” the key rate to the level of the refinancing rate. For now, the refinancing rate of the Central Bank of the Russian Federation will fade into the background.

Until June 2014, the key rate was 7.5%, today it is 8%.

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 billing 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 clients a profit 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.