What is the refinancing rate

If you want to understand what the refinancing rate is, then first of all it is necessary to understand the essence of the concept of refinancing. The legislation of the Russian Federation stipulates that this term is understood as lending by the Russian Central Bank to other credit institutions. The Central Bank itself is a very significant financial structure, concentrating almost all the state's money resources, while "willingly" lending it to anyone who wishes, if this means more or less large commercial credit organizations. Since the Central Bank has billions in its possession, it does not deal with issuing loans of several thousand. Saying "willingly," we mean that he does not give out money to credit institutions for nothing, usually this is done on terms of repayment and reimbursement, while the percentage is quite large. The interest rate in this case is the same for all credit institutions, and this is what is meant by the term refinancing rate. What it is, many people want to know who are somehow affected by the topic of lending. It is important to understand that the Central Bank annually assigns a very specific value of this rate. The value of this parameter varies in a rather wide percentage range and depends on the mass of the factors.

What is the refinancing rate, and what is its value

It is generally accepted that the refinancing rate serves as an important indicator of the monetary policy of the Central Bank. With the help of this instrument, the bank changes the level of profitability of securities, while prices stabilize and inflationary growth is regulated. Regulation of inflation is carried out in a very specific scenario. We have already understood what the CBR refinancing rate is, now let's consider the sequence of actions taking place under this scenario.

First, the Central Bank reduces the refinancing rate. After that, commercial banks have the opportunity to take a more "cheap" loan, which affects their own loan rate, which also becomes lower. It turns out that now legal entities and individuals can take loans in commercial banks much cheaper. Because of the "euphoria" that has "rolled over" on citizens, they begin to gain more and more loans, buying everything they need. The result is an increase in demand for goods in stores, which is why prices start to rise, while significantly accelerating the rate of inflation. This all causes the Central Bank to raise the refinancing rate. Credits start to go up, which affects citizens, because now they take them with less willingness, so they buy much less. Here we mean not luxury goods, but everyday goods. This allows you to reduce inflation. At this time, there is stagnation in the securities markets, as buying and selling them becomes unprofitable, because there is no place to take money, and loans are issued at a high interest. 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 infinite, because throughout the history of banks, we have observed many times the decrease and increase of this indicator. You already understand what the refinancing rate is.

Let's look at the areas of our life in which it is applied. 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 specified in the loan agreement, then it is set 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.