If you want to understand what a refinancing rate is, then first you need to understand the essence of the concept of refinancing. The legislation of the Russian Federation stipulates that this term means lending by the Russian Central Bank to other credit organizations. The Central Bank itself serves as a very significant financial structure, concentrating practically all of the state’s financial resources, while “willingly” lending them to all who wish, if this means more or less large credit organizations of a commercial nature. Since the Central Bank has billions at its disposal, it does not issue loans of several thousand. Saying “willingly”, we mean that he does not give out money to credit organizations just like that, usually this is done on conditions of repayment and retribution, while the percentage is quite large. The interest rate in this case is the same for all credit organizations, and that is what is meant by the term refinancing rate. What is it, many who want to at least somehow touch on the topic of lending. It is important to understand that the Central Bank annually assigns a very specific value to this rate. The value of this parameter varies in a fairly wide percentage range and depends on a mass of factors.
What is the refinancing rate, and what is its significance
It is generally accepted that the refinancing rate serves as an important indicator of the monetary policy of the Central Bank. Using this tool, the bank changes the level of profitability of securities, at the same time, prices stabilize and inflation growth is regulated. Regulation of inflation is carried out according to a very specific scenario. We already understood what the CBR refinancing rate is, now let's look at the sequence of actions taking place in this scenario.
First, the Central Bank will lower the refinancing rate. After that, commercial banks have the opportunity to take a “cheaper” loan, which affects their own credit rate, which also becomes lower. It turns out that now legal entities and individuals can take loans from commercial banks much cheaper. Due to the euphoria that has “rolled” on citizens, they are beginning to gain an increasing number of loans, buying everything they need. The result is an increase in demand for goods in stores, which is why prices are starting to rise, while significantly accelerating inflation. This all becomes the reason for the increase in the refinancing rate by the Central Bank . Loans begin to rise in price, which affects citizens, because now they take them with less willingness, so they buy much less. What is meant here is not luxury goods, but everyday goods. This allows you to reduce inflation. At this time, there is stagnation in the securities markets, since buying and selling them becomes unprofitable, because there is nowhere to take money from, while loans are issued at a large percentage. The result of this situation is that the Central Bank is trying to somehow revive the market by lowering the refinancing rate. This movement can be called endless, since over the course of the history of banks, we have many times observed a decrease and increase in this indicator. You already understand what a refinancing rate is.
Let's figure out in which sectors of our life it is used. If the interest on deposits of individuals exceeds the refinancing rate by 5%, then such income will be taxed. If the interest rate is not indicated in the loan agreement, then it is assigned equal to the refinancing rate. And in other cases, this indicator is very important.
We figured out what the refinancing rate is and what its purpose is. It is clear that it is an important economic parameter that directly affects the life of every citizen.