Bank refinancing rate. The state of each country controls the amount of money in circulation. This allows timely stimulation or restraint of economic growth. The Central Bank monitors and regulates the money supply using special tools. One of them is the discount rate.
The state of each country controls the amount of money in circulation. This allows timely stimulation or restraint of economic growth. The Central Bank monitors and regulates the money supply using special tools. One of them is the discount rate.
The discount rate is the percentage at which commercial banks receive loans from a national one. Changing this indicator just affects the money supply. What happens if the bid decreases? Commercial banks receive loans on more favorable terms, increase their reserves. They can issue loans to customers at a lower percentage. That is, the supply of money in circulation is increasing.
The government finances the budget deficit by selling government securities. Profitability on them depends on the discount rate. Its decrease affects the number of borrowed funds. As a result, government spending is decreasing and savings are increasing.
If the accounting bank rate is increasing, this indicates a deterioration in the economic situation in the country. The cost of attracting resources is increasing. Reserves of banks are decreasing. Prices for goods are increasing, and real incomes are decreasing. As a result of reduced purchasing power, demand for goods is decreasing and prices are slowing down.
In developed countries, the bank's discount rate does not exceed 1%:
- United States - 0.25% (to be reviewed on 25.10.15);
- Eurozone - 0.05% (20.10.15);
- Great Britain - 0.50% (November 5, 15);
- Japan - 0.1% (30.10.15).
Influence of rates on the exchange rate
The previously discussed connection is not always observed. In Russia, in 1998, a crisis of refinancing of the budget was created by the state central banks. The discount rate reached 150%. When the government announced default, the ruble to the US dollar fell three times.
What happened? As a result of the crisis, there was an outflow of foreign capital, which resulted in an increase in net investment. Such a process stimulates the increase in demand for borrowed funds. That is, Russian citizens began to take loans in rubles, and then exchange them for dollars. Foreign currency purchases are foreign investments. As a result, the real rate has grown. There are many currency market proposals. The exchange rate is low. Such an economic effect is called the "flight of capital".
As early as 2014, Russian citizens did not know about such concepts as key, accounting and refinancing rates. But after a sharp devaluation of the Russian ruble, new terms were put into circulation.
According to Art. 395 of the Civil Code, the discount rate determines the price of money to regulate the amount of liability for non-fulfillment of the obligation. In other words, it is used in the calculation of fines, penalties and other penalties. Its size is regulated by the Central Bank of the Russian Federation.
Subsequently, the discount rate of refinancing was applied to tax and other legal relations. By 2013, it has become an indicator of socio-economic development of the country, reflecting a minimum fee for the use of credit resources.
As a result, the Central Bank introduced a new term - "key rate", which determined the market price of money. But at the end of 2014, the gap between these two indicators was very high. While the Central Bank dictated the "social" refinancing rate at 8.25%, the key was 17%. As a result, participants in monetary and monetary relations tried to charge a higher interest on obligations. In 2015, the Central Bank has already lowered its market rate from 15% to 11%. But the gap still exists.
Key rate dynamics
This metric affects:
- cost of attraction of resources by commercial banks;
- rates on loans, deposits;
- inflation rate;
- economic development of the country as a whole.
From 31.07.15, the key rate is 11%. The most serious change was in December 2014. During the day the rate increased from 10.5 to 17%. As a result, banks began to attract deposits under 20%, and the cost of loans has sharply increased.
With the process of raising money people face each time they draw up a deposit or take out a loan. It is also called the decourse method:
F = I / P = (S-P) / P, where
I - the amount of interest.
S - future value.
P - the initial value.
The effectiveness of a transaction financial institutions calculate by discounting - the reduction of future value of cash flows in to date.
d = D / P = (S - P) / S, where
S - future value.
P - the initial value.
Although external formulas are similar, their economic meaning is different. In the first case, there is a "markup" of value, and in the second "discount" of its value. Account rates are most often used in the process of discounting. They are less commonly used in building ups. In the second case, talk about antispypattic percentages. If you use simple discount rates, then changes take place in arithmetic progression, and if complex - in geometric.
Loan in the amount of 1000 thousand rubles. issued for a term of 6 months (0.5 years) under 30%. Determine the future value of money in two different ways:
- decursive: F = P * (1 + n * i);
- antispypatomatic: F = P * (1 / (1 - n * d)), where
n - the duration of lending;
I - interest rate;
d - discount rate.
1) F = P * (1 + n * i) = 1000 * (1 + 0,5 * 0,3) = 1150 thousand rubles.
2) F = P * (1 / (1 - n * d)) = 1000 * (1 / (1 - 0,5 * 0,3)) = 1176 thousand rubles.
Accruing at a discount rate always happens at a faster pace. Banks often use it to issue loans during high inflation.
frequency of charge
Typically, financial institutions set annual rates. When it comes to simple percentages, the gain frequency does not matter, as the process increases in an arithmetic progression. But the duration of the loan period (n) is not always multiples of the whole year. Simple interest is used in short-term operations. Specifically for such cases, an amended formula for calculating future value is used:
- decursive percentages: F = P * (1 + (t / K) * i));
- antispyptive interest: F = P * (1 / (1 - (t / K) * d)), where
t - number of days of using the loan;
K is the number of days in the year (365 or 366).
Complex discount rates take into account the reinvestment process, as the cost increase is carried out in a geometric progression. With long-term investment, the use of this method is more preferable. The owner has the opportunity at any time to invest money in order to generate income. The formula for calculating antispyptive interest is as follows:
F = P * (1 / (1-d) ^ n) = P * (1 / (1 - d) ^ (t / K)).
In the long run, the process of refinancing, that is, the calculation of "interest on interest" manifests itself more clearly. Therefore, the operation duration in days is measured extremely rarely. Usually, the number of years is expressed fractional number in places (4/12 or 8/12). For more accurate calculations, the form of a mixed order of charge is applied. Interest initially accrued for an entire number of years, and then on a fractional:
F = P * (1 + i) ^ n) * (1 + (t / K) * i).
Example. Credit in the amount of 3000 thousand rubles. Issued January 1, 2013 to September 30, 2015 at 28% per annum. The most commonly used standard formula is:
F = 3000 * (1 + 0.28) ^ (2 + 9/12) = 5915 thousand rubles. where
2 - an integer number of years;
9/12 - January to September 2015
If you use a mixed method, then the formula will look like this:
F = 3000 * (1 + 0.28) ^ 2 * (1 + 272/365 * 0.28) = 5937 thousand rubles.
The difference in the calculations is 22 thousand rubles.