Today we will try to figure out what exactly affects the fluctuation of credit bank rates, why we pay additional commissions when paying interest on loans, what additional deductions should be considered when insuring our own life.
Central Bank as a key element of refinancing
The refinancing rate is primarily a tool through which commercial financial institutions are supplied with funds from the Central Bank. What is the role of this state body?
Everyone knows that the Central Bank is responsible for all monetary policy, and the goal of this activity is to ensure the welfare of the country's population (at the proper level). This is part of a long-term strategic government policy towards maintaining a decent level of GDP.
The central bank has its own levers of influence, which are called mechanisms of influence. They are approved by law and are as follows:
- limitation of operating rates of commercial banks;
- reserve rationing;
- surgical intervention in the open market;
- issue activity;
- currency regulation;
- refinancing of rates of commercial organizations engaged in lending activities.
The concept and calculation of the refinancing rate
Since we are talking about the instruments of influence of the Central Bank, we will focus on the latter and, in a way, the most important of them. The refinancing rate is an indicator that is formed relative to the economic and inflationary processes in the state. As a rule, it does not require additional calculations, since it has a clearly established coefficient in a certain period, but more on that later.
Now it should be understood that it directly affects the level of credit availability for the general population. The refinancing rate is the amount that governs the number of loans in a country. In other words, the lower it is, the greater the likelihood that households can afford to pay a fine and accrual on borrowed funds.
Entrepreneurship is affected by the rate level in much the same way. The lower it is, the more working borrowed funds can be attracted to your own business. Because the percentage is quite low.
Refinancing and the state
So, we realized that the level of this coefficient directly affects the welfare of both households and business entities. What is its role for the state? The government, in turn, determines the level of taxes, fines and penalties at the refinancing rate. In other words, the entire fiscal policy of the state depends on it .
Well, since this coefficient is a general regulator of cash flows, there is a certain relationship: as soon as the inflation rate in the country begins to approach the maximum level, the rate accordingly rises, thereby reducing the amount of borrowed funds at the disposal of the population.
As for the fiscal policy itself, the regulatory process is much more complicated.
Refinancing and your loan
First, consider the most important tax for all household representatives - personal income tax. When an ordinary person takes a loan from a commercial bank, and it is time to pay interest, he thinks little about what hidden fees are reimbursed additionally. Consider an example. Suppose the interest rate of refinancing at the time of issuing borrowed funds is set by the state in the amount of 15%, while the bank gives funds at 11%. The optimal lender ratio, according to the current legislation (Article 212 of the Tax Code of the Russian Federation), will be 75% of the state established, that is 11.25%.
It turns out that the borrower saves 0.25% of the loan by taking a loan from this bank. From this amount, personal income tax will be deducted from him as an additional benefit. She, as a rule, is included in the costs of servicing the loan, and often no one pays special attention to them, since they accumulate a little.
Refinancing and business
In the ordinary course of business, the rate of the Central Bank (refinancing) may apply to entrepreneurs only if they pay for goods or services purchased with securities (for example, bills or bonds) that were previously purchased from a third party. This condition applies only to those cases when the goods are subject to VAT, and the transaction is carried out on the territory of the Russian Federation.
Then the nominal value of taxation will increase by the amount of income on securities. In this case, only the profitable part will be taken into account that will exceed the allowable value in the initial calculation, in accordance with the current refinancing coefficient.
In this case, the refinancing rate is the amount by which your business may suffer. Therefore, if this indicator when purchasing a bill was higher than at the time of the transaction, the entrepreneur will lose. If, on the contrary, the rate has increased, it will remain in profit from the operation.
Refinancing and insurance
Among other things, the Central Bank refinancing rate has a certain degree of influence on the income of citizens in the event that they insured their lives. How it works?
As an example, let's take a type of insurance, popular at one time, that is, reimbursement of a certain amount of funds upon reaching a certain age. Suppose the policyholder regularly made contributions from his own pocket for several years, and now the coveted year of payment has arrived.
It is important to understand the extent to which the state presented the refinancing rate at the time of conclusion of the insurance contract. If on the day of payment the amount of compensation does not exceed the total indicator of premiums increased by the coveted coefficient, then there is no reason to be afraid of anything. If on the contrary, then from the difference you will need to pay a personal income tax for the received additional benefit.
How do refinancing rates change over the years
Over the past decade, this ratio has fluctuated between 7-9%, which indicates some stability in the country's monetary market . Nevertheless, I would like to consider situations where the rate directly affects the behavior of commercial banks.
For example, the refinancing ratio has increased. In this case, credit unions and other institutions engaged in lending should somehow compensate for the expected decline in demand for their services. It's simple - interest on the provision of funds will increase.
But that is not all. Such coefficients change for a reason. Most likely, if this happened, the state is introducing a new fiscal policy to regulate inflationary processes. And this means that further new reforms will follow in the form of legislative regulatory acts, so banks will have to adjust their business to the next trends.
Refinancing and Capitalism
Consider the situation on the example of a country with a developed market economy - the United States. The refinancing rate today plays a crucial role in fiscal regulation of cash flows and the formation of the federal reserve. In America, this indicator determines the percentage that a commercial bank must pay in case of temporary use of public funds. Therefore, if this ratio is low enough, then the commercial system is not in danger, and it can easily carry out operational activities. However, as soon as the rate begins to grow, the activity of credit institutions is in jeopardy, since the likelihood that they will be able to pay their own obligations falls sharply, which subsequently threatens to default.
Refinancing rate in the Russian Federation
At one time, this indicator played a significant role in regulating cash flows in the vast country. So, in the fight against inflationary trends in 1992-1996, this ratio reached 99%.
When such flows inherent in an unhealthy economy were relatively successfully settled, the rate began to fall steadily. Now, commercial financial institutions can easily and at a very adequate percentage provide both long-term and fairly short-term loans (and sometimes even give loans for one night or a weekend), without sacrificing either their reputation or the interests of clients.
Moreover, it should be noted that the refinancing rate in the Russian Federation today is only for informational purposes, which is enshrined in law and has guarantees until January 2016.