What is the Central Bank key rate

What is the Central Bank key rate

Before moving on to the concept of the minimum rate, let's understand what inflation is. Simply put, it is the rise in the price level of goods and services. For the country's economy to develop properly, this indicator must be kept at a certain level. Currently, the target inflation rate is 4%. Under normal conditions, the real figure should remain close to this number.

This is achieved by changing the Central Bank's key rate, which is the main instrument of the state's monetary policy. Simply put, the minimum rate is the interest at which the Central Bank lends to Russian commercial banks. By changing its value, the Bank of Russia regulates aggregate demand for goods and services.

As mentioned above, the key rate is not a fixed indicator; its value is constantly changing. The key rate reached its maximum on Black Tuesday — December 16, 2014. At that time, there was a collapse of the ruble against the US dollar and the euro, and the Central Bank's Board of Directors was forced to raise the minimum rate by 6.5% in a single night, up to 17%.

Note.

The definition of the key rate in Russia first appeared in 2013.

How the minimum rate has changed since 2013

15.06.20215,50

Date of change	Key rate value, %
13.09.2013	5,5
03.04.2014	7,0
28.04.2014	7,5
28.07.2014	8,0
05.11.2014	9,5
12.12.2014	10,5
16.12.2014	17,0
02.02.2015	15,0
16.03.2015	14,0
05.05.2015	12,5
16.06.2015	11,5
03.08.2015	11,0
14.06.2016	10,5
19.09.2016	10,0
27.03.2017	9,75
02.05.2017	9,25
19.06.2017	9,0
18.09.2017	8,5
30.10.2017	8,25
18.12.2017	7,75
12.02.2018	7,5
26.03.2018	7,25
17.09.2018	7,5
17.12.2018	7,75
17.06.2019	7,5
29.07.2019	7,25
09.09.2019	7,00
28.10.2019	6,50
16.12.2019	6,25
10.02.2020	6,00
27.04.2020	5,50
22.06.2020	4,50
27.07.2020	4,25
22.03.2021	4,50
26.04.2021	5,00
15.06.2021	5,50
26.07.2021	6,50
13.09.2021	6,75
25.10.2021	7,50
20.12.2021	8,50
14.02.2022	9,50
28.02.2022	20,00
12.04.2022	17,00
04.05.2022	14,00
27.05.2022	11,00
14.06.2022	9,50
25.07.2022	8,00
19.09.2022	7,50
25.07.2023	8,50
15.08.2023	12,00
18.09.2023	13,00
30.10.2023	15,00
18.12.2023	16,00
29.07.2024	18,00
17.09.2024	19,00

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What the Central Bank's key rate affects

The Central Bank's key rate affects the following factors:

1. First of all, an increase in the key rate leads to more expensive loans. Raising this indicator forces banks to increase interest rates on consumer loans. Otherwise, lenders would operate at a loss.
2. This follows from the previous point. The higher the minimum rate and the more expensive loans are, the higher the yield on deposits. In essence, banks' profit is the difference between the profit earned on loans and the interest paid to depositors. Increasing the cost of loans gives banks the opportunity to increase deposit interest rates as well, thereby encouraging the public to invest in deposits.
3. Business activity of enterprises — that is, their development. The higher the Central Bank's minimum rate, the higher the cost of consumer loans, the lower the purchasing power of the population and the demand for goods. All this results in a slowdown in the development rate of enterprises.
4. The amount of tax payable on deposits. According to the Tax Code, a depositor is required to make payments to the Federal Tax Service if their income from deposits exceeds an amount equal to one million rubles multiplied by the Central Bank's minimum rate. As of July 2021, it is 55000 RUB.
5. The amount of penalties. For late payment of taxes or utility bills, a Russian citizen is required to pay a fine. The amount of the penalty is determined by the Tax Code of the Russian Federation: 1/300, 1/150, or 1/130 of the Central Bank rate for each day of delay.
6. Stock prices. An increase in the minimum rate leads to a decrease in demand for securities and, as a result, their price drops.
7. The refinancing rate. It is now a conditional synonym for the minimum rate, since their values have been identical since 2016.

How the Bank of Russia changes the key rate

The main task of the minimum rate is to keep inflation at the target level. Changing it is the main tool of the state's monetary policy aimed at managing aggregate demand.

The change follows this principle:

1. If there is a threat of inflation, the Central Bank raises the key rate, which leads to more expensive loans and lower demand for goods and services. Accordingly, the growth rate of enterprises slows down, and the general price level decreases. Such a monetary policy is called restrictive.
2. If deflation is observed, the Central Bank, on the contrary, lowers the value, which leads to a decrease in the cost of loans and an increase in demand for goods and services. As a result, the growth rate of enterprises accelerates, and the general price level rises. Such a monetary policy is called stimulating.

Note.

There is also a neutral monetary policy. Under it, the minimum rate does not change.

What influences changes in the Central Bank's key rate

Changes in the Central Bank's minimum rate are influenced by the following factors:

• slowdown or acceleration of annual inflation;
• decrease or increase in people's inflation expectations;
• changes in monetary conditions;
• slowdown or acceleration of gross domestic product (GDP) growth rates.

Where to find the current key rate

You can find out the current minimum rate on the official website of the Bank of Russia: https://cbr.ru. To find this information, the user does not need to open new tabs — all data is on the main page.

Is it possible to get a consumer loan at the Central Bank's key rate

Key rate is the interest rate at which the Central Bank lends to commercial banks. Credit institutions, in turn, set the rate for borrowers. Since the Bank of Russia does not engage in lending to individuals, it is impossible to get a loan at the minimum rate.