What is the bank's key rate? Key rate of the Central Bank of the Russian Federation

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Considering the question of what the key rate is, it would be logical to note that this concept is a relatively new instrument of monetary policy in Russia. The practice of using this tool in the West is very common, since it can be used to significantly influence the exchange rate of the national currency. If we take into account the specifics of the Russian economy, then the key rate has a peculiar effect on the situation in the country.

A bit of history and the actual situation

Studying the question of what the key rate is, it is worth saying that this is the price that is used when the Central Bank provides financial support to commercial financial institutions. The indicator is expressed as a percentage that is charged on a loan provided by the Central Bank to smaller financial institutions. On the territory of Russia, the concept appeared only in 2013. The main purpose of introducing this tool is to control the inflation process. Until 2013, it was customary to use the refinancing rate for this purpose. The modernization of the financial policy was carried out due to the fact that the refinancing rate no longer reflects the real state of affairs in the marketresources. The Central Bank determines what indicators the key rate will correspond to. The refinancing rate, which has significant differences from the COP, was also formed by the Central Bank. The QC is re-evaluated on a monthly basis (based on the actual market situation).

How has the rate changed over time?

The setting has been changed many times over the past year. Initially, the indicator corresponded to 5.5%. Between March and June 2014, it changed several times: 7%, 7.5% and 8%. At the end of October 2014, the size of the CA reached 9.5%. Already on December 12, 2014, due to the sharp rise in the dollar exchange rate, the Board of Directors of the Bank of Russia agreed on an indicator of 10.5%. Due to the fact that the change in the rate did not bring the expected result and there was no impact on the market in the expected volume, on the 16th day of the same month the rate already became 17%. On February 2, 2015, it was lowered to 15%. At the last meeting, which took place on March 16 this year, it was decided to set the rate at 14%.

What happened before?

The key rate of the Bank of Russia is an analogue of the refinancing rate. Today, the SR is used to calculate pen alties, fines, and taxes. It has been at the level of 8.25% for a long time. If earlier it served as a starting point for determining interest on loans, today it does not perform this function. Until September 13, 2013, the SR was considered the most important economic indicator that reflected the economic processes in Russia. The secondary task of the SR remains today. It is used asan indicative indicator for analyzing the level of inflation and the market as a whole. The key rate of the Central Bank of the Russian Federation is an instrument that has almost completely replaced the SR as an indicator of the economic situation.

The impact of the Constitutional Court on the situation in the country

By changing the COP, the Russian government can control inflation. An increase in the key rate leads to an increase in the cost of resources of commercial financial institutions, a sharp increase in interest on deposits and loans. High interest rates make lending to individuals inaccessible to most. Reduction of funds leads to a sharp drop in purchasing power. The pressure on the ruble is significantly reduced, inflation is suspended. If the country's economy slows down due to a reduction in production, then there is such a thing as deflation. The Council of the Bank of Russia decides not to raise the key rate, but to lower it. Loans are becoming more affordable, lending to the real sector of the economy begins. Things are leveling out.

Tool Features

Studying the question of what the key rate is, it is worth mentioning the absence of this instrument in the legislation of Russia. Its place is still occupied by the refinancing rate, although its role is in fact very insignificant. Everything is limited to the calculation of sanctions, pen alties and taxes. By the end of 2015, the CS should completely replace the SR. The main advantage of using this tool is that it canadjust the level of inflation, therefore, have a very positive impact on the recovery of the state's economy. Traders around the world are closely following the CS of major market participants (America, Switzerland, Japan, Canada, etc.). On the eve of the rate announcement, you can notice a lot of volatility in the market. If the rate changes, then there is a significant jump. The key rate of the Central Bank of the Russian Federation is a financial instrument that is not without drawbacks. It is worth mentioning its inertia and low efficiency in a crisis. With a sharp deterioration in the economic situation, especially if the state is affected by external factors, the change in the rate does not have time to harmonize the situation, and the negative consequences of the impacts appear.

Alternatives and perspectives

Considering the question of what the key rate is, it is worth saying that in a crisis it is better to replace it with command-and-control measures. This may be a freezing of the exchange rate or state regulation of prices in the market. Financial market standards may also be tightened. If we consider the situation on the example of Russia, it becomes obvious that the increase in the rate to 17% did not bring the expected result, not only because of the approaching devaluation of the ruble, but also because of sanctions from the West. The cardinal change in the indicator, due to its low efficiency, was soon reduced, first to 15%, and then to 14%. At the moment, the Central Bank has no reason to further raiserates. This decision can only lead to an increase in the cost of banking products, which are still inaccessible to most of the population. Considering that Russia is now trying with all its might to provide financing for the real sector of the economy, we can talk about a further decrease in the CA.

Topical news on the Constitutional Court and changes in tax legislation

The key rate of the Bank of Russia is the "secret weapon" of the Central Bank, which was introduced into monetary policy in order to improve its transparency. The last critical increase in the indicator to 17% was recorded at the beginning of 2015. As a result, commercial financial institutions began to actively raise rates not only on loans, but also on deposits. At the same time, in accordance with the legislation, the interest on ruble deposits, which is higher than the SR by 5 percentage points, should be taxed (personal income tax). Considering that the SR remained the same after the increase in the COP, deposits with a yield of more than 13.25% (which turned out to be the majority) began to be subject to tax. Previously, the number of deposit programs with a yield of more than 13.25% was minimal, today they are the majority. Almost all people with deposits are subject to personal income tax.

Workaround for mismatch

As a result of legislative discrepancies, depositors had to pay about 35% tax on excess profits. As a result of this development of events, it was decided to amend the tax legislation. The 5 percentage point markup has been changed to plus 10percentage points. Ruble deposits with a yield of 18.25% are not subject to the taxation system. The accepted benefit is a temporary solution that will expire on December 31, 2015. In the future, it is planned to reduce the level of both the refinancing rate and the key rate to one value.

What can the COP tell about?

As mentioned above, the CV is an indicator of the state of the Russian economy. And studying the question of what is the key rate of the bank, you need to pay attention to the presence of correspondences between the size of the indicator and the state of affairs in the country. With a low interest rate, we can say that the ruble is very weakened, and the exchange rate of the national currency is excessively low. A high interest rate indicates a slowdown in the economic development of the state in the short term. The amount of money that is in circulation begins to decline, and the exchange rate of the national currency increases. Considering that after the winter rate increase in Russia, the ruble exchange rate slowed down its decline, it is now rational to say that another reduction in the COP can lead to a stabilization of the situation and to a depreciation of the dollar. The domestic economy will actively develop, and the state found the solution to all problems precisely in the answer to the question of what the bank's key rate is for the country.