What is the refinancing rate of the Bank of Russia? This is a question that worries economists, speculators, traders, and even representatives of the banking segment. We can say that the rate is in the form of monetary supply by the Central Bank of the Russian Federation to smaller financial institutions. The Central Bank provides loans to commercial financial institutions that subsequently lend to individuals (nationals) and legal entities (companies, enterprises and organizations).
Refinancing rate in practice
In order to understand in detail what the refinancing rate of the Bank of Russia is, consider the cash flow movement mechanism. Commercial financial institutions borrow money from the Central Bank of the Russian Federation. For example, a million dollars. A year later, a small participant in the financial system should return to the Central Bank of the Russian Federation a borrowed million dollars plus a percentage for its use. The current refinancing rate of the Bank of Russia will be the percentage that a small commercial bank should pay, in addition to the main debt. During the year, while a small financial institution uses the money of the Central Bank of the Russian Federation, it gives loans to the population and entrepreneurs at a percentage that is an order of magnitude higher than the refinancing rate. The difference between the rate of the Central Bank of the Russian Federation and the percentage at which the commercial structure gives money is the latter's profit. The population is credited, and all participants in the scheme receive their profit.
Why does the CBR not work directly with citizens of the country?
The Central Bank of the Russian Federation does not work directly with private and legal entities simply because its smallest financial transactions amount to millions, or even tens, hundreds of millions of dollars. Such amounts are simply unbearable for entrepreneurs. Small financial institutions act as a kind of intermediaries in the structure of lending to the population. For financial institutions - this is an opportunity to earn. People, in turn, receive high-quality financial services thanks to an extensive system of offices and branches, the presence of structures with a large number of ATMs. Suppose that the refinancing rate of the Bank of Russia is 10%. In this case, the population and entrepreneurs will receive loans at 18%. As a result, bankers will receive a net profit of 8% of the total payment for the use of funds.
Is their distribution to the population at the highest possible percentage?
Small financial institutions can borrow money from the Central Bank at a low interest rate, and they can already transfer money to the population at the interest rate they want. Theoretically, such an opportunity exists. However, one must also pay attention to competition, which has more than toughened recently in the financial segment of Russia. Too high rates scare away customers. We have already roughly examined what the refinancing rate of the Bank of Russia is. It happens that it is only a few orders of magnitude lower than that available to the ordinary citizen of the country. Moreover, the offers of most commercial structures do not differ much. There are exceptions to the market. For example, credit organizations engaged in consumer lending in large stores and lending through cards can set rates in the amount of 30 to 70%. Customer search is based on the psychology of people who are eager to buy something. It is they, because of the lack of financial literacy, who agree to such an unprofitable partnership.
How is the refinancing rate calculated?
The refinancing rate of the Central Bank of Russia is determined taking into account two factors. This is the actual economic situation in the country and the rate of inflation. With increasing inflation, so does the rate. With a decrease in inflation, it decreases. The situation can be considered on the other hand. When the interest rate of the Bank of Russia refinancing is low, the population has the opportunity to enjoy the benefits of low-cost loans. Rates on them during this period are significantly lowered, people are willing to cooperate, as they can buy anything they want, with a minimum overpayment. Separate advantages are also received by enterprises that may request financing of their activities. Attracting “cheap” money to the business allows you to produce large volumes of products with the subsequent receipt of high incomes after their sale.
How does the rate reflect the state of the economy?
The refinancing rate of the Central Bank of the Russian Federation acts as a kind of indicator of the state economy of the state and the standard of living of people. At low interest rates on loans, people have a large amount of funds in their hands. A great demand for goods is being formed in connection with the possibilities of their purchase. As a result, over time, goods begin to rise in price due to their shortage. The situation is driving up inflation. This is a process of depreciating money, reflecting the ability to purchase a different amount of goods for the same amount. Big inflation reflects the well-being of people. The higher the indicator, the lower the welfare and the higher the level of discontent. The refinancing rates of the National Bank are constantly changing, as they are used to adjust the inflation rate. To stop the depreciation of money, the rate rises, which leads to more expensive loans, to reduce demand for them and to reduce purchasing power.
The relationship of rates and taxation
In addition to lending, the refinancing rate of the Central Bank of the Russian Federation is actively used in the field of taxation. For example, it is worth mentioning the taxation of income from a deposit account, the interest on which is higher than the refinancing rate by more than 5 percentage units. For example, if the refinancing rate is 10%, and the deposit rate is 15%, then you do not need to pay tax. If the deposit rate is 20%, then you will have to pay a tax to the state in the amount of 35% of the excess 5% of the deposit.
Relationship of rates and duties of employers
Considering the question of what is the refinancing rate of the Bank of Russia, it is worth mentioning that it acts as a tool that is the main one for determining the compensations that are due to an employee in case of untimely payment of wages, in case of delay in vacation pay or funds that must be paid to workers in case of dismissal. In accordance with Russian law, the employer must pay the full amount of the debt, to which is added monetary compensation calculated on the basis of the rate. It will be at least 1/300 of the refinancing rate for each day of delay. The indicator is used to calculate penalties, which are charged as a fine for non-payment of taxes and other fees.
Bet in Russia
The current situation in the world dictates its own rules. The acute economic crisis has forced banks in Russia more and more often to seek financial assistance from the Central Bank. Lending allows them to fully fulfill their obligations to customers. The provision of interest-bearing funds to commercial entities is called refinancing. The refinancing rate of the Bank of the Russian Federation first appeared in 1993. For 10 years, she systematically changed. Russia has always sought to minimize this indicator, down to the level of leading countries. In Japan, in particular, the rate is 0.1%, which fully reflects the high level of development of the state. In Russia, the interest rate is 8.25%, which in terms of numerical values is fundamentally different from the rate of America, in fact the situation in countries also varies significantly.
What is the refinancing rate, in fact?
In theory, the refinancing rate in Russia should be the most powerful monetary policy tool. Its change was to be carried out with the aim of regulating the amount of money, the volume of which affects the whole country. You can pay attention that the tool is not used, since the last rate change took place in 2012. Not working in the field of monetary policy, the indicator leaves its mark on the fiscal. The volume of funds in the country is regulated by emissions. In reality, the size of the indicator and the amount of funds are completely unrelated values. To say more, they are almost completely opposite and do not reflect each other. Many analysts see in this situation a problem associated with the insufficient level of development of both the rate and the reserve standards. Even commercial structures borrow money from the Central Bank of the Russian Federation, starting from the one-day repo rate. This indicator gives loans to individuals and legal entities. It can be noted that the refinancing rate is nothing more than a formality, a declarative tool that does not have a good impact on the state’s monetary policy.