Monetary policy is a set of measures and government in the field of money circulation and credit.
Monetary policy of the central bank (monetary policy) is a set of government measures that regulate the activities of the monetary system, the loan capital market, and the procedure for achieving a number of general economic goals: stabilizing prices, rates, and strengthening the monetary unit.
Monetary policy is the most important element.
All impacts are reflected in the value of the total social product and .
The main objectives of the state monetary policy:- containment
- Security
- Pace regulation
- Mitigation of cyclical fluctuations in the economy
- Ensuring the sustainability of the balance of payments
Principles of monetary and credit regulation of the economy
Monetary regulation of the economy is carried out on the basis of the principle compensatory regulation, which assumes the following:
- monetary policy restrictions, which involves limiting credit transactions by raising reserve standards for participants in; level up ; limiting the growth rate in circulation compared to the mass of commodities;
- monetary policy expansion, which involves stimulating credit operations; reduction of reserve norms for subjects of the credit system; falling lending rates; acceleration of the turnover of the monetary unit.
Instruments of monetary policy
The development and implementation of monetary policy is the most important function. It has the ability to influence the volume of money supply in the country, which in turn allows you to regulate the level of production and employment.
The main tools of the central bank in the implementation of monetary policy:- Regulation of official reserve requirements
It is a powerful means of influencing the money supply. The amount of reserves (the part of banking assets that any commercial bank is required to keep in the accounts of the central bank) largely determines its lending capacity. Lending is possible if the bank has enough funds in excess of the reserve. Thus, increasing or decreasing reserve requirements can regulate the lending activity of banks and, accordingly, affect the money supply.
- Open Market Operations
The main tool for regulating the money supply is the purchase and sale of government securities by the Central Bank. When selling and buying securities, the Central Bank tries to influence the volume of liquid funds of commercial banks by offering favorable interest. By buying securities on the open market, he increases the reserves of commercial banks, thereby contributing to an increase in lending and, accordingly, an increase in the money supply. The sale of securities by the Central Bank has the opposite effect. - Regulation of discount rate of interest (discount policy)
Traditionally, the Central Bank provides loans to commercial banks. The rate of interest at which these loans are issued is called the discount rate of interest. By changing the discount rate of interest, the central bank affects the reserves of banks, expanding or reducing their ability to lend to the population and enterprises.
The factors that affect demand, supply, and interest rates can be grouped under the heading "monetary policy instruments". These include:
Interest rate policy of the Bank of Russia
The Central Bank sets minimum interest rates for its operations. The refinancing rate is the rate at which a loan is granted by commercial banks, or it is the rate at which bills are rediscounted from them.
The Bank of Russia may establish one or more for various types of operations or pursue an interest rate policy without fixing the interest rate. Bank of Russia uses interest rate policy to influence market interest rates in order to strengthen the ruble.
Bank of Russia regulates the total amount of loans issued to them in accordance with the accepted guidelines of the unified state monetary policy, while using the discount rate as an instrument. Bank of Russia interest rates are the minimum rates at which the Bank of Russia carries out its operations.
Interest policy of credit institutions, being part of the national monetary policy, has a significant impact on the development, its stability. they are usually free to choose specific rates on loans and deposits and use some indicators reflecting the state of the short-term money market as benchmarks in the implementation of interest rate policy. On the other hand, the central bank, in the process of targeting, sets intermediate monetary policy goals that it can influence, as well as specific tools to achieve them. This may be the refinancing rate or interest rates on central bank operations, on the basis of which the short-term interbank lending rate is formed, etc.
The problems of identifying the factors influencing the interest rate policy of commercial banks have been of concern to specialists since the formation of economic theory. However, answers to many questions have not yet been found. Modern research aimed at identifying the optimal rules for the implementation of national monetary policy, in more are based on .
In theory and practice, methods of direct and indirect regulation of national monetary policy are considered. From the point of view of interest rate policy in the narrow sense (rates on credit and deposit operations, the spread between them), the instrument of its direct regulation is setting by the central bank of interest rates on loans and deposits of commercial banks, indirect instruments - setting the refinancing rate and the rate on central bank operations in the money and open markets.
Interest rates on loans and deposits as instruments of direct regulation are not often used in world practice. For example, the People's Bank of China sets rates that are considered indicative for the banking system. At the same time, the bank's policy is aimed at reducing the spread, which in the first half of 2006 was 3.65%, and by the end of 2009 - 3.06%, which indicates sufficient liquidity of the Chinese banking system.
In many countries, including Russia, the refinancing rate has become more of an indicative indicator, giving the economy only an approximate benchmark for the value of the national currency in the medium term, since it is in an unchanged state for a long time, while the real rates in the money market change every day.
Required reserve ratios
Under existing legislation, commercial banks are required to allocate part of the funds raised to special accounts in.
Since January 2004 set by the Central Bank the following contributions to the mandatory reserve fund Bank of Russia: for ruble accounts of legal entities and foreign currency of citizens and legal entities, as well as for ruble accounts of citizens - 3.5%.
The maximum amount of deductions, i.e., the required reserve ratios, is 20% and cannot change by more than 5% at a time.
This standard allows the Bank of Russia to regulate the liquidity of the banking sector.
The reserves serve as a current regulation of liquidity in the money market, on the one hand, and as a limiter on the issue of credit money, on the other.
In case of violation of the required reserve ratios, the Bank of Russia has the right to recover in an indisputable manner from the credit institution the amount of outstanding funds, as well as a fine in the established amount, but not more than double.
Open market operations
Operations on the open market, which are understood as the purchase and sale by the Bank of Russia of corporate securities, short-term operations with securities with the completion of a reverse transaction later. The limit of operations on the open market is approved by the board of directors.
In accordance with the law of July 10, 2002 No. 86-FZ (as amended on October 27, 2008) “On the Central Bank of the Russian Federation (Bank of Russia)”, the Bank of Russia has the right to buy and sell, having a commodity origin with a maturity of not more than 6 months, buy and sell bonds, certificates of deposit and other securities with a maturity of not more than 1 year.
Refinancing
Refinancing means lending by the Bank of Russia to banks, including accounting and rediscounting of bills. The forms, procedure and conditions for refinancing are established by the Bank of Russia.
Refinancing of banks is carried out by providing intraday loans, overnight loans and holding Lombard loan auctions for up to 7 calendar days.
Currency regulation
It should be considered from two sides. On the one hand, the Central Bank must monitor the legality of foreign exchange transactions, on the other hand, the change in the national currency in relation to other currencies, avoiding significant fluctuations.
One of the methods of influencing the exchange rate is the conduct of foreign exchange interventions or motto policy by central banks.
Currency intervention- is the sale or purchase of foreign currency by the Central Bank for the purpose of influencing the exchange rate and the total demand and supply of money. These, obviously, should also include transactions for the purchase and sale of precious metals on the domestic market of the Russian Federation, the procedure for which is regulated by the letter of the Central Bank of the Russian Federation dated December 30, 1996 No. 390.
The main objectives of the exchange rate policy in Russia are strengthening confidence in the national currency and replenishing gold and foreign exchange reserves. At present, the monetary base is fully secured by gold and foreign exchange reserves.
Direct quantitative restrictions
Under the direct quantitative restrictions of the Bank of Russia, the establishment of limits on the refinancing of banks, the holding by credit institutions of certain banking operations. The Bank of Russia has the right to apply direct quantitative restrictions in exceptional cases for the purpose of pursuing a unified state monetary policy only after consultations with the government of the Russian Federation.
Growth benchmarks for money supply indicators
The Bank of Russia may set growth targets for one or more indicators based on the main directions of the unified state monetary policy. In Russia, the main aggregate is the monetary aggregate.
To date, the monetary policy of central banks is guided by monetarist principles, where the Central Bank is tasked with tightly controlling the money supply, ensuring a stable, constant and long-term growth rate of the amount of money in the economy, equal to the GDP growth rate.
Other factors that affect demand, supply and interest rates include:
- the situation in the real sector of the economy;
- return on investment in production;
- the situation in other sectors of the financial market;
- economic expectations of business entities;
- the need for banks and other business entities in cash to maintain their liquidity.
Politics of cheap and expensive money
Depending on the economic situation in the country, the central bank pursues a policy of cheap or expensive money.
Cheap money policy
Characteristic of the situation of economic recession and high level. Its goal is to make credit money cheaper, thereby increasing aggregate spending, investment, production, and employment.
To implement a cheap money policy, the central bank can reduce the discount rate on loans to commercial banks or make purchases on the open market or reduce the reserve requirement ratio, which would increase the money supply multiplier.
Expensive money policy
It is carried out with the aim of reducing the pace by reducing aggregate spending and limiting the money supply.
Includes the following activities:- An increase in the discount rate of interest. Commercial banks begin to take less loans from the Central Bank, hence the money supply is reduced.
- Sale of government securities by the central bank.
- Increase in reserve requirements. This will reduce the excess reserves of commercial banks and reduce the money supply multiplier.
All of the above instruments of monetary policy referred to indirect (economic) methods of influence. In addition to these general methods of monetary regulation, the whole bank also uses direct (administrative) methods designed to regulate specific types of credit. For example, a direct limitation on the size of bank loans for consumer needs.
Monetary policy has pros and cons. Strengths include speed and flexibility, less dependence on political pressure compared to fiscal policy. Problems in the implementation of monetary policy are created by cyclical asymmetry. The effectiveness of monetary policy can also be reduced as a result of an opposite change in the velocity of money.
Interest rates represent amounts indicated as a percentage of loans, which are paid by the recipients of credit funds for their use in a certain time period (quarter, month, year, etc.). If we consider interest rates from the position of money, then their value is a store of value.
Interest rates - what are they and how do they work?
Interest rates are based on transactions with other credit institutions. Thanks to their discount rates, central banks are able to influence the interest rates that are set in commercial banks, the exchange rate of national currencies, as well as the state inflation rate.
If interest rates fall, then business activity, as well as the inflation rate, rises.
Conversely, during an increase in interest rates, business activity decreases, which leads to a depreciation and appreciation of the national currency.
Interest policy is perhaps one of the most important and at the same time quite complex regulatory tools for the banking system. The main principles for constructing a scale of such rates are based on the demand/supply of credit resources, the amount of deposits, storage periods, inflation rates, etc.
What is the structure of interest rates in the general sense?
Interest rates are that part of the profit that borrowers pay to creditors for money taken on a loan (otherwise a loan), defined as a certain “irrational form of prices” of borrowed funds (loan capital).
Loan funds, in turn, are a set of monetary capital that are provided on the terms of repayment for temporary use for a certain amount of payment, expressed as a percentage. The form of movement of loan capital.
There is such a thing as the sources of interest rates, in the role of which is the surplus value formed during the process of productive use of loan funds.
The division of the profit that is obtained during the use of loans into the interest already assigned by the loan funds, and the actual profit itself, represents the entrepreneurial income received by the borrowers and arising under the loan market.
Thus, directly% - you express the relationship between the lenders and borrowers themselves and act as certain interest rates.
Interest rates are determined according to the specific conditions for the use of credit funds and are subject to credit and monetary regulation by the Central Banks.
We note right away that the value of such rates can contribute either to the OUTFLOW of money capital from the internal state money markets or, conversely, to the INFLOW. For this reason, in such markets, the mobility of funds is very high, and their direct movement between various state capital markets is reflected in interest rates.
Thus, interest arbitrage is a technical tool that helps to equalize different national interest rates. But we note that in 2015 the movement of money capital is influenced not so much by this technical tool as by fluctuations (jumps) in the exchange rate. Now let's look at the main types of interest rates.
Interest rates on loans. What is important to know?
Interest rates on loans are the payment of a loan taken from banks. In other words, this is a payment to your credit institution for the use of its funds during a certain time, i.e. credit resources. As a result, interest rates on loans here are the price of a loan (the price of borrowed money), i.e. the amount of funds that borrowers undertake to pay to creditors for the use of their capital for their needs.
The rate of interest, interest money, interest rate, interest rate, interest per annum, per annum, all these concepts are essentially the same phenomenon - an indicator of the loan price, which reflects the ratio "interest amount / loan amount", i.e. interest on loans. This percentage, in turn, is the amount of income from the provision of funds on credit.
All these concepts are closely related to the periods of accrual of interest on a loan, which are the period of time during which interest is accrued for the use of credit funds. As a rule, this is the period from the moment of issuing credit funds until its full repayment.
The amount of interest rates depends on the types of loans, their amount, intended purpose, term of use, sufficiency of ensuring the fulfillment of obligations under the Loan and Liquidity Agreements, the reputation of borrowers and their credit history, discount rates of National banks, inflation rate and other factors.
The main types of interest rates on loans are:
- simple,
- complex (floating),
- short-term
- and long term.
Let's take a closer look. Simple interest rates on loans have a clearly fixed value specified in the contract, for example, in 2015, the size of such rates varies from 10.5% to 14.5% per annum.
We note right away that banks have the right to charge loan interest only for the period of time during which the borrowers actually used the loan funds. In other words, the interest on the loan should accrue as it is repaid only on the remaining, outstanding amount.
Borrowers pay interest on the loan along with a certain part (according to the payment schedule determined by the loan agreement) of the main debts. At the same time, loan interest is part of the total amount of the loan.
Among other things, interest rates on loans indirectly depend on the terms of the loan itself. So, for example, short-term loans, unlike long-term ones, are usually issued in banks at a higher interest rate. What explains such a “discrepancy” in the percentage level? It's simple - the desire of lenders to maximize profits with minimal risk and minimal costs.
About interest rates on deposits
First, let's look at the basic concepts. What is bank deposits?
It is necessary to draw your attention to the fact that with excessively high interest rates on deposits, some banking institutions try to hide their problems.
In other words, they are trying to raise funds at high rates in order to urgently close the "gap" in their balance sheet. If a bank offers you to open a deposit, where interest rates are several times higher than the average market value, then think carefully whether you should trust your savings to it?
How do interest rates affect the Forex market?
As mentioned above, an increase in lending rates leads to an influx of foreign investors, thereby causing an increase in the exchange rate of the national currency and its rise in price. Reducing the discount rates makes it possible to make loans measured in the national currency cheaper, but at the same time, the amount of money in circulation grows and increases. For this reason, lowering the discount rate can lead to the fact that the exchange rate of the national currency will begin to fall.
If a decrease in discount rates is followed by a slight fall in the exchange rate of the national currency, then, most likely, in the very near future it is necessary to expect its long-term growth, and this must be taken into account by those traders who open long-term transactions on Forex.
In addition, interest rates affect those whose trading is not limited only. This moment is due to the use of leverage provided by brokers.
In other words, it is the same loan with a minimum period of use equal to one day. For example, you open an order for the EUR/USD pair in the amount of one lot. It turns out that you have EUR available, and you borrow USD to make a purchase.
If, for example, the discount rate for EUR is 1%, and for the American currency 2.5%, then you will place your Euros at 1% per annum, and dollars, respectively, at 2.5%. For the transfer of the position in the final result, the commission will be 1.5% per annum or in terms of days - 0.0041% per day.
Interest rates and the impact of inflation on them
Russian
Cash card, Russian Card for receiving cash from the machine.
Money supply, Russian The total money supply that determines the national economy and is in circulation.
Monetary system, Russian
Russian Assets and liabilities that are denominated in a fixed amount of money, such as bank account balances, trade debtors, loans, and trade creditors.
Money and clothing lottery, Russian , see lottery.
Monetary policy, Russian A set of measures in the field of money circulation and credit aimed at regulating economic growth, curbing inflation, providing employment and equalizing the balance of payments; serves as one of the most important methods of state intervention in the process of reproduction.
Monetary regulation, Russian One of the main means of state influence on economic processes. d.-k.r. economy of the Russian Federation is carried out by the Bank of Russia. he determines the norms of required reserves, discount rates on loans, establishes economic standards for commercial banks, and conducts transactions with securities. The Bank of Russia, in cooperation with the Government of the Russian Federation, develops and implements a unified state monetary policy aimed at protecting and ensuring the stability of the ruble.
Cash reward, Russian Reward in cash.
Money disaggio, Russian Deviation of the exchange rate of securities, stock values or banknotes towards a decrease in comparison with their nominal value. disaggio is usually expressed as a percentage of the face value.
Monetary allowance, Russian The type of material support for military personnel established by the state. d.d. regulated by the federal law of the Russian Federation of May 27, 1998 No. 76-fz "on the status of military personnel" and other regulatory acts. the circle of persons entitled to d.d. composition d.d. consists of
Money dimension, Russian End-to-end measurement of the results of business transactions with the help of money, providing comparable results.
Cash security, Russian
Cash security, Russian A form of collateral for a loan that consists of maintaining a reserve fund from which payments can be made in case of losses and the presentation of relevant claims by investors.
Money circulation, Russian
Monetary obligation, Russian The obligation of one party to pay money to the other party on the basis of an agreement, as a result of causing harm and for other reasons. see also order of repayment of claims under the monetary obligation.
Cash cover, Russian The degree to which the firm has the cash collateral needed to make all payments on time.
Cash allowance, Russian
- cash benefits
Directly, Russian Directly, directly, first hand. arch. from the second (fifth, tenth) hands. , myself
