What is the key rate of the bank? The key rate of the CBR

Considering the question of what a key rate is, it will be natural 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 with its help it is possible to exert a significant influence on the exchange rate of the national currency. If we take into account the specifics of the Russian economy, the key rate also affects the situation in the country.

A bit of history and the actual situation

Studying the question of what a key rate is, it is worth saying that this is the price that is used when providing the CBA with financial support to commercial financial institutions. The indicator is expressed in percent that is credited to a loan provided by the Central Bank to smaller financial institutions. On the territory of Russia, the concept appeared only in 2013. The main goal of implementing this tool is to control the inflation process. Until 2013, it was decided to use the refinancing rate for this purpose. The modernization of the financial policy was carried out in connection with the fact that the refinancing rate did not reflect the real state of affairs in the resource market. The central bank determines which indicators the key rate will meet . The refinancing rate, which has significant differences from the CS, was also formed by the Central Bank. Revaluation of the CS is carried out monthly (based on the actual situation on the market).

How did the bet change over time?

During the last year the parameter has been changed many times. Initially, the figure was 5.5%. In the period from March to June 2014, it changed many times: 7%, 7.5% and 8%. In late October 2014, the size of the COP reached 9.5%. Already on December 12, 2014, in connection with a sharp increase in the dollar, the Board of Directors of the Bank of Russia agreed on the figure of 10.5%. Due to the fact that the change in the rate did not bring the expected result and the expected volume was not brought to the market, on the 16th of the same month the rate already amounted to 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 penalties, fines and taxes. It has long remained at the level of 8.25%. If earlier it served as a starting point for determining interest on loans, today it does not fulfill this function. Until September 13, 2013 SR was considered the most important economic indicator, which reflected the economic processes in Russia. The secondary task of the SR remains today. It is used as an indicative indicator for analyzing the level of inflation and the market as a whole. The key rate of the CBR is a tool that almost completely replaced the SR as an indicator of the economic situation.

The impact of the COP on the situation in the country

Changing the COP, the Russian government can control inflation. The increase in the key rate leads to the fact that there is a rise in price of resources of commercial financial institutions, there is a sharp increase in interest on deposits and loans. High interest rates make lending to individuals inaccessible to the majority. Reduction of funds leads to a sharp drop in purchasing power. Pressure on the ruble is significantly reduced, inflation is suspended. If the economy slows down in the country due to the reduction in production, then there is such a phenomenon as deflation. The Council of the Bank of Russia decides not to raise the key rate, but to lower it. Credits become more accessible, crediting of the real sector of the economy begins. The situation is leveled.

Tool Features

Studying the question of what is the key rate, it is worth mentioning the lack of this tool in the legislation of Russia. Its place is still occupied by the refinancing rate, although its role in fact is very insignificant. Everything is limited to the calculation of sanctions, penalties and taxes. By the end of 2015, the COP should completely replace the SR. The main advantage of using this tool is that with its help you can adjust the level of inflation, therefore, have a very positive impact on the recovery of the economy of the state. Traders from all over the world are closely watching the CS of major market participants (America, Switzerland, Japan, Canada, etc.). On the eve of the announcement of a rate on the market, one can notice a great deal of volatility. If the rate changes, then a significant jump occurs. The CBR's key rate is a financial instrument that is not devoid of shortcomings. It should be said about its inertia and low efficiency in the crisis. With a sharp deterioration in the economic situation, especially if the impact on the state is external factors, the rate change does not have time to harmonize the situation, and the negative consequences of the impacts are manifested.

Alternatives and Perspectives

Considering the question of what a key stake is, it is worth saying that in a crisis it is better to replace it with command and administrative measures. This can be freezing of the exchange rate or state regulation of prices in the market. Standards of work on financial markets may also be tightened. If we look at the situation on the example of Russia, it becomes obvious that raising 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 grounds for further raising the rate. This decision can only lead to a rise in the price of banking products, which are still inaccessible to most of the population. Given that Russia is now trying hard to provide financing for the real sector of the economy, we can talk about further lowering of the COP.

Topical news on CC 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 of the indicator to 17% was recorded in early 2015. As a result, commercial financial institutions began to raise rates not only for loans, but also for deposits. At the same time, according to the law, the percentage of ruble deposits, which is 5 percentage points higher than the SR, should be taxed (Personal Income Tax). If we take into account that the CP has remained the same after raising the CS, deposits with yield more than 13.25% (which turned out to be the majority) became subject to taxation. Previously, the number of deposit programs with a return of more than 13.25% was minimal, today their majority. Virtually all people who have deposits, were subject to personal income tax.

Temporary resolution of non-compliance

As a result of the legislative discrepancy, depositors had to pay about 35% of the excess profit tax. As a result of this development, it was decided to make amendments to the tax legislation. The mark-up of 5 percentage points was changed by plus 10 percentage points. Ruble deposits with a yield of 18.25% are not subject to the taxation system. The accepted privilege is a temporary decision, which expires on December 31, 2015. In the future, it is planned to reduce the level and rates of refinancing, and the key rate to one value.

What can tell the COP?

As mentioned above, the COP is an indicator of the state of the Russian economy. And when 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 weak, 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. If we take into account that after the winter rate increase in Russia the ruble rate has slowed down, now it is rational to say that another reduction in the CS can lead to stabilization of the situation and to a cheaper dollar. The internal economy will actively develop, and the state has found the solution of all problems in the answer to the question about what is the key rate of the bank for the country.