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
All actions of state regulatory bodies, and in particular, central banks that affect finance and money circulation, are important factors for exchange rates. The price of a currency is determined primarily by the supply and demand associated with that currency on the international market. Therefore, the exchange rates of major currencies are created by the market, but central banks have a range of tools through which they can significantly affect exchange rates. Central banks use these tools based on the goals of their financial policy (the main of which is the stability of the national currency) and the specific situation that is determined by the state of the economy, the country's competitive position in the world market and political factors. Therefore, the markets are always very closely watching not only the economy, but also the financial statistics of the main trading countries, trying to predict the actions of central banks based on them.
Monetary Statistics Indicators
The amount of money in circulation (Money Supply) is one of the essential factors that shape the exchange rate. An excess of one currency will create an increased supply of it in the international foreign exchange market and cause a decrease in its exchange rate in relation to other currencies. Accordingly, a shortage of currency in the presence of demand for it will lead to an increase in the exchange rate, characterizing the composition of money (the structure of the money supply). The monetary aggregates themselves are defined somewhat differently in different countries, but their general meaning is quite similar.
M1 - cash in circulation outside banks, traveler's checks, demand deposits, other checkable deposits;
M2 – M1 + non-checkable savings deposits, time deposits with banks, overnight repos, overnight US dollar deposits, mutual fund accounts;
M3 - M2 + short-term government bonds, REPO transactions, Eurodollar deposits of US residents in foreign branches of US banks.
US monetary aggregate data is released weekly, usually on a Thursday.
The impact of data on monetary aggregates on currency cycles is assessed primarily through their relationship with the stages of economic cycles. The behavior of various monetary aggregates in the economic cycle is quite similar: they all show maximum growth rates before the start of a recession and growth minima at the end of a recession. For this reason, aggregate M2, for example, is included in the composite index of leading indicators. All aggregates experience the greatest growth during the recovery stage; M2, on average, has one growth rate in the recession stage and in the growth stage.
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Interest rates
None of the indicators of economics and finance is as important for tracking the dynamics of foreign exchange markets as interest rates. The Interest Rate Differential, that is, the difference in interest rates for two currencies, is the main factor that directly determines the relative attractiveness of a pair of currencies, and, consequently, the possible demand for each of them. There are many types of interest rates in the money market of each country: the rate at which commercial banks borrow money from the central bank (official interest rate - Official Interest Rate), the rates at which banks borrow money from each other (interbank borrowing rates - Interbank Offered Rate ), interest rates that determine the yield on government securities (Government Bonds Yields), interest rates at which banks issue loans to their customers (Lending Rates), interest rates at which commercial banks raise money in deposits (Deposit Rates) All these rates closely interconnected and ultimately determined by the official interest rate set by the central bank
Thanks to the transparency of the boundaries for financial capital, an investor today can choose the most profitable option for investing his money. Therefore, if a Japanese investor has funds in trillions of yen and can receive income on them in the form of interest on a deposit in a Japanese bank in the amount of, say, 0 1% per annum, then this investor, of course, will prefer a dollar deposit at 5.5% per annum in an American bank, or he will buy American government bonds, which also pay high returns, and are guaranteed
The higher the interest rate for this currency compared to other currencies (large interest differential), the more foreign investors will be willing to buy this currency in order to deposit funds at a high interest rate. And since interest rates are always closely linked, high banking market rates mean high government bond rates as well as high yields on riskier corporate bonds. In a word, high interest rates make this currency attractive as an investment tool, which means that the demand for it in the international currency market is increasing, and the exchange rate of this currency is growing.
Central bank interest rates
Market interest rates on loans, deposits, etc. do not arise by themselves in the market element. In each country, credit conditions and interest rates in the money market are regulated by the central bank.
The discount rate (discount rate) characterizes the conditions under which the central bank (CB) provides funds to commercial banks. (1 - d / 100) x S, and he will return the amount S to the central bank. Usually the discount rate is set as a percentage per annum.
Interest rates (interest rate) of interbank borrowing in many countries are the main instrument of policy of central banks. They go by different names, but common sense one of them lies in the fact that at such interest rates commercial banks borrow funds from each other for a short time to regulate their balance sheets. The difference between the interest rate and the discount rate lies in the method of calculating the amounts. (1+r/100) x S
Officially regulated interbank borrowing rates are the determining factor for all other money market rates; they determine rates on government debt securities, yield levels on all other financial instruments, and interest on loans to bank customers.
The main factor that directly and directly determines the exchange rate of one currency against another is the difference in interest rates acting on the two currencies (Interest Rate Differential).
For example, let a bank client have 1 million euros, which are released from the company's turnover for a period of 3 months and can be placed on deposit to generate income. In this case, suppose that the interest rates for the euro are 2.62 percent per annum, and higher rates apply for the dollar at 5 28 percent Then, by converting euros into dollars, you can get more income Let's say today's euro exchange rate is EUR = $1,0400. If you place the amount of 1 million euros in a deposit, then in 3 months the amount will be received.
If you convert 1 million euros into dollars at the EUR rate and place them in a dollar deposit, then the amount will be received:
If the euro exchange rate for these 3 months remained the same EUR = 1.0400$, then the result of the second option in euros would be 1.0132, and the difference between the amount received from converting the dollars received back into euros and the result obtained in the first option would be 1.0132 – 1.00655 = 0.00665 million = 6.650 euros, would be the benefit from the conversion of euros into dollars and the dollar deposit transaction, received from the difference in interest rates for the dollar and for the euro.
Business Optimism Index
In developed countries, regularly published indexes of business optimism are widely distributed, calculated on the basis of a survey on the state of the economy of leading businessmen - heads of large corporations.
In the US, this is the NAPM (National Association of Purchasing Management) index, in the UK, the CVI (Corporation of British) index.
Recently, Russia has also been calculating and regularly publishing indices of business optimism of Russian entrepreneurs.
An increase in this index increases confidence in the national economy and contributes to the growth of the exchange rate.
Business Activity Indices
Extremely popular in last years in economic statistics, indicators based on the method of constructing the so-called diffusion indices. Indices of this kind, which by their nature are indicators of the business optimism of business participants, are regularly published (under the names PMI) in the USA, England and Germany, where they are created by the relevant business associations. They are used both to assess the direction of public opinion and to measure the dynamics of objective indicators. . In Japan, a similar TANKAN index has been adopted by the Central Bank of Japan itself as a tool for analyzing the dynamics of economic processes for making decisions in the field of monetary policy.
Diffusion indices, unlike many other indicators of socio-economic statistics, are purely subjective indicators. They do not measure the volume of output, the number of orders, income, etc., but are only a reflection of how participants in economic processes perceive ongoing changes - for the better. they (in their opinion) or they lead to deterioration. Despite such subjectivity, or rather, precisely because of it, these indices have extremely strong predictive properties, they are leading indicators that are highly correlated with the main parameters of economic cycles.
a) trade negotiations
Trade negotiations are important integral part economic policy of any country. In particular, the ratio of imports and exports provides such an important indicator of economic development as the trade deficit. For the US, the trade deficit has been a major problem over the past few years, playing a significant role in the fall of the US dollar against major currencies. The result of trade negotiations finds an immediate response in the market, sometimes more than significant.
b) meetings of central banks
The main task of central banks is to regulate the internal economic life of the country. In addition, the adjustment of the internal and external value of the currency is also included in his duties. Therefore, any meeting of the central bank (or rather, its working committee) attracts the close attention of foreign exchange market participants. One of the main means of stimulating or, conversely, slowing down the growth of the economy, attracting foreign capital, the attractiveness of government bonds and, as a result, the value of the currency, is the regulation of interest rates.
The most important are the actions of the US Federal Reserve System, which have a significant impact on the US stock market and the global financial markets in general, so the participants are closely watching the changes in interest rates and the operations of the FOMC (Federal Open Market Committee) in the government securities market and the statements of the Fed representatives, in particular, its head A. Greenspan.
Scheduled meetings of the FRS are held eight times a year (once every one and a half months) At the meeting, the economic situation in the country is considered and, based on the analysis, the further monetary policy of the country is determined, policy documents are adopted and the level of the credit interest rate for the sale of federal funds (Federal Funds Rate) is determined and the value of the discount interest rate (Discount Rate). The final minutes of the meeting (Minutes of the FOMC) are published a few days later.
c) meetings of the G8, economic and trade unions
One of the tasks of the G8 is to regulate the world economy and, in particular, the specific situation in the world currency market. There is a certain agreement between the members of the G8 on this matter - the SWAP Agreement. The result of the meeting of the G8 countries may be the decision to conduct joint intervention in the world currency market by several central banks or other measures to limit or, conversely, stimulate the growth in the value of a particular currency .
Meetings of trade unions that regulate trade relations between countries or determine the policy of a particular region can also have a fairly strong impact on a particular currency. The appeal of the US and Japan to the WTO (the World Trade Organization, created in January 1994), after the unsuccessful end of the next round of trade negotiations, left the yen practically without movement for almost a whole week. of the world economy and distributing loans, do not have a direct impact on currencies, although they may cause a certain response in the market. Most likely, in the present situation, one can count on determining a long-term strategy for the development of the market as a whole, rather than an immediate reaction.
d) speeches by heads of government, heads of central banks, prominent economists on the situation on the market
This is one of the factors that in most cases finds an immediate response in the market. The speech of the head of the Swiss National Bank Lumiere about Switzerland's lack of interest in a strong own currency on September 29, 1995, led to a jump in the Swiss franc from the level of 1,400 to 1,480 within a few minutes, and further to level of 1 1580 within the next hour Another example is the speech of the prominent economist Bergstein, which, together with unexpected figures from the deteriorating US trade balance and unfulfilled expectations about the additional budget of Japan, led to a catastrophic collapse of the yen in less than two days from 104.55 to 97 15 , nullifying a two-week effort by the Central Bank of Japan and the US Federal Reserve. Quite often, especially under certain conditions, the speech of a person can not only greatly affect the behavior of the currency, but also radically change the situation on the market.
Conclusion
Fundamental factors usually always have the expected impact, however, a trader should be careful not to take any of these factors as a 100% guarantee of a corresponding change in the exchange rate.
Several important additional points affecting the exchange rate.
Interest rate(interest rate) - the amount indicated as a percentage of the loan amount, which the recipient of the loan pays for using it for a certain period (month, quarter, year).
From the position of the theory of money, the interest rate is the price of money as.
Interest income is income from the provision of capital in debt in various forms ( , ), or it is income from investments in .
Interest rate - a fixed rate at which the amount of interest is paid on time. Typically, the interest rate characterizes the ratio of the annual amount of interest (interest income) to the amount of the principal debt. The interest rate is also used in the process of accruing value.
Interest rate is a fee charged by banks for loans. The interest rate is the basis of the cost accounting of banks. The interest rate depends on the size of the loan, its maturity, on the ratio of supply and demand for, as well as the degree of risk that the credit institution bears by lending a certain amount to the debtor.
History of interest rates
For the past two centuries, base interest rates have been set either by national governments or by central banks. For example, the US Federal Reserve Rate ranged from 0.25% to 19% between 1954 and 2008, while base rates ranged from 0.5% to 15% between 1989 and 2009, and the spread base rates in Germany ranged from close to 90% in the 1920s to around 2% in the 2000s. During an attempt to reverse the hyperinflationary spiral in 2007, the Reserve Bank of Zimbabwe raised interest rates on loans to 800%.
Central bank interest rates
Interest rate - the rate of the central bank on operations with other credit institutions. Through the central bank, it has the ability to influence the interest rates of commercial banks, in the country and.
When interest rates decrease, business activity rises and inflation rises. An increase in interest rates leads to a decrease in business activity, a decrease in inflation and an appreciation of the national currency.
The main interest rate in the United States: the Federal funds rate is the interest rate at which banks place free funds on accounts in the United States to other banks on .
The rate in the Eurozone is the Refinancing tender rate - the interest rate that is the lowest possible for applications to raise funds in a tender.
Japan's main interest rate: The target interest rate on overnight loans is the level of interest that it wants to see as an average in the market for short-term deposits.
The interest rate, which is the main one in the UK, the so-called interest rate (Repo rate) is the rate at which the Bank of England issues short-term loans secured by securities.
The base rate for Canada: the target overnight rate (Overnight rate target) is the level of interest that the Bank of Canada wants to see as an average in the market for short-term deposits. To control the level of interest rates in the overnight market, the Bank of Canada establishes a so-called operating range with a width of 0.50%, the middle of which is always the target overnight interest rate.
Australia: The overnight Australian dollar cash rate is an interest rate determined as a result of supply and demand in the money market. The Reserve Bank of Australia sets the required level of this rate and maintains it by controlling .
Interest rates
Interest rates on loans can be greater than zero, equal to zero ("interest-free loan") and less than zero ("negative" interest). If interest rates reach a high value, this leads to usury.
Types of interest rates
There are several types of interest rates.
Fixed and floating rates
Depending on whether the rate changes over time, there are fixed and floating interest rates:
- - is permanent, established for a certain period and does not depend on any circumstances.
- subject to periodic review. The change in the rate is carried out on the basis of fluctuations of certain indicators. A classic example of such indicators is (LIBOR, the weighted average rate on the London Interbank Credit Market). Accordingly, the floating rate LIBOR + 5% will mean that the nominal value of the interest rate is 5% higher than the LIBOR rate.
Decursive and antisipative rates
Depending on the timing of interest payments, there are two types of interest rates:
- decursive rate- the interest is paid at the end together with the principal amount of the loan;
- antisipative rate- the interest is paid at the time of the loan (in advance) and is determined on the basis of the final amount of the debt.
For the lender, the antisipative rate is more profitable, and for the borrower, the decursive one. So, if the interest rate is 10%, then at a decursive rate on a loan of $1,000, the lender will receive $1,100 at the end of the term. At the antisipative rate, he will give the borrower $900 and at the end of the term he will receive $1000.
Real and nominal rates
Distinguish between nominal and real interest rates.
Real interest rate is the interest rate taking into account .
The relationship between the real, nominal rate and inflation is generally described by the following (approximate) formula:
I r = I n - I iWhere I r- real interest rate;
I n- nominal interest rate;
I i- the expected or planned level of inflation.
Irving Fisher proposed a more precise formula for the relationship between real, nominal rates and inflation, expressed by the Fisher formula named after him:
I r = (1 + I n)/(1 + I i) - 1 = (I n - I i)/(1 + I i)At I i = 0 And I i = I n both formulas give the same value. It is easy to see that for small values of the inflation rate I i the results differ little, but if inflation is high, then Fisher's formula should be applied.
According to Fisher, the real interest rate must be numerically equal to the marginal productivity of capital.
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 control
- 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 dated 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 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.
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 measurement, 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
