What is the rate of refinancing of the bank of Russia and what is its size?

What is the refinancing rate of the bank of Russia? This is a question that worries both economists, and speculators, and traders, and even representatives of the banking segment. We can say that the rate is in the form of monetary supply of the Central Bank of the Russian Federation by smaller financial institutions. The Central Bank provides loans to commercial financial institutions, which subsequently lend to individuals (citizens of the country) and legal entities (companies, enterprises and organizations).

Refinancing rate in practice

In order to understand in detail what the refinancing rate of a bank in Russia is, consider the mechanism for the movement of cash flows. Commercial financial institutions take money from the CBRF. For example, a million dollars. A year later, a small participant in the financial system should return the borrowed million dollars to the Central Bank of Russia plus interest for its use. The current refinancing rate of the bank of Russia will be the same as the interest that a small commercial bank must pay, in addition to the principal debt. During the year, while a small financial institution uses the money of the Central Bank of the Russian Federation, it issues 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 interest, under which the commercial structure gives out money, is the profit of the latter. The population is credited, and all participants in the scheme receive their profits.

Why does the Central Bank of Russia not work directly with the citizens of the country?

The Central Bank of the Russian Federation does not work with private and legal entities directly, simply because the volumes of the smallest financial transactions are millions, or even tens, hundreds of millions of dollars. Such amounts for entrepreneurs are simply too heavy. Small financial institutions act as 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 due to the branched out system of offices and branches, the presence of structures with a large number of ATMs. Let's assume that the size of the refinancing rate of the bank of Russia will be equal to 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 it permissible for them to be issued to the population at the highest percentage?

Small financial institutions can borrow money from the Central Bank at a low interest, and they can already transfer money to the population at the interest they want. Theoretically, this possibility exists. However, it is necessary to pay attention also to the competition, which recently in the financial segment of Russia is more than tougher. Too high rates discourage customers. We have already considered approximately what the refinancing rate of a bank in Russia is. It happens that it is only several orders of magnitude lower than the one that is available to an ordinary resident of the country. Moreover, the proposals of most commercial structures do not differ much. There are exceptions in the market. For example, credit organizations engaged in consumer lending in large stores and credit cards can set rates ranging from 30 to 70%. The search for clients is based on the psychology of people who are striving to buy something. It is they who, because of the lack of financial literacy, agree to such a low-value 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 level of inflation. With an increase in inflation, the rate also increases. With a fall in inflation, it is declining. The situation can be examined on the other hand. When the interest rate of refinancing of the bank of Russia is low, the population has the opportunity to enjoy the advantages of low-cost loans. Rates on them during this period are significantly lowered, people are willing to cooperate, since they can buy themselves whatever they want, with a minimum overpayment. Separate advantages are received also by the enterprises which can request financing of the activity. Attraction of cheap money in the business makes it possible to produce large volumes of products with the further receipt of high incomes after its realization.

How does the rate reflect the economic state of the state?

The refinancing rate of the Central Bank of the Russian Federation acts as a kind of indicator of the state of the economy of the state and the standard of living of people. With low interest on loans, people get a lot of money on their hands. A great demand for goods is formed in connection with the possibilities of their purchase. As a consequence, after a while the goods begin to rise in price because of their shortage. The situation activates the growth of inflation. This process of depreciation of money, reflecting the opportunity to purchase a different number 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, because with them the inflation rate is adjusted. To stop the depreciation of money, the rate rises, which leads to a rise in the cost of loans, a reduction in demand for them and a decrease in purchasing power.

Relationship 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 percent. For example, if the refinancing rate is 10%, and the deposit rate is 15%, then you do not need to pay the tax. If the rate on the deposit is 20%, then you will have to pay the tax to the state at a rate of 35% of the excess 5% on the deposit.

Relationship rates and employer responsibilities

Considering the question of what the refinancing rate of a bank of Russia is, it is worth mentioning that it acts as the instrument that is the main one for determining compensations that are given to the employee in case of late payment of wages, with 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 the monetary compensation calculated on the basis of the rate is added. It will be at least 1/300 of the refinancing rate for each day of delay. The indicator is used to calculate the penalty, which is charged as a penalty for non-payment of taxes and other charges.

The rate in Russia

The current situation in the world dictates its own rules. The acute economic crisis forced Russian banks to apply for financial assistance to the Central Bank more and more often. Lending allows them to fully fulfill their obligations to customers. Providing funds at interest to commercial entities is called refinancing. For the first time, the refinancing rate of the Bank of Russia appeared in 1993. For 10 years, it has been systematically changing. Russia has always sought to maximize the decline of this indicator, up to the level of the leading countries. In particular, in Japan 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 by numerical values is fundamentally different from that 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 tool for conducting monetary policy. Its change was to be carried out in order to regulate the quantity of money, the volume of which influences the whole country. You can pay attention that the instrument is not used, since the last change in the rate took place in 2012. Not working in the sphere of monetary policy, the indicator imposes an imprint on the fiscal. Regulation of the volume of funds in the country is carried out through emissions. In reality, the size of the indicator and the amount of funds are quite unrelated. To say more, they are almost completely opposite and do not reflect each other. Many analysts see in the current situation the problem associated with the insufficient level of development of both the rate and reserve rates. Even commercial structures borrow from the CBRF means, based on the rate of one-day repurchase. In this indicator loans are given 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.