Many banks have already raised their rates. Both for deposits and loans.
Photo: Svetlana MAKOVEEVA
Last week the Central Bank raised the key rate. It grew from 7.5 to 8.5% annually. Is not that much. But many banks have already raised their rates. Both for deposits and loans. On average, 0.5 – 1% per year. We understand what the Central Bank is trying to achieve and how all this has affected the main banking products.
WHY WAS IT NECESSARY?
By raising the rate, the Central Bank is fighting the rise in inflation. She is slowly accelerating. Since the beginning of the year already more than 3%. And the Central Bank expects to keep it within 6.5% at the end of the year. The key rate affects prices as follows.
First, it increases the attractiveness of ruble savings. Leaving them on bank deposits or investing in government bonds becomes more profitable. And this will prevent some customers from transferring money to foreign currency. They will buy less dollars, euros and yuan. The exchange rates of these currencies will fall or at least stop rising. Imports will no longer rise in price. And this will affect general inflation.
Second, a high key rate reduces demand in the economy. It makes the loans more expensive. The population is less willing to take them. There is less money in the economy. Entrepreneurs understand that raising prices with little demand won’t work. And reduce their appetites. As a result, inflation is growing at a slower rate.
WHY LOW INFLATION IS SO IMPORTANT
This is the foundation on which economic development can be built. In most countries of the world, this indicator is considered one of the main ones that people pay attention to. For example, both the US and Europe are raising their rates. They, too, are fighting inflation, which accelerated after the pandemic. Then the developed countries actively pumped their economies with money. And now they are trying to fix the situation with higher rates.
The reference inflation rate is 2-4% per year. For developed countries, it is rather 1-2%, and for developing countries, 3-5%. Low, predictable price growth is important to everyone. And for the state, and for business, and for the people. Then all the economic mechanisms work without any problem. The state can draw up a budget for the next few years. A company can invest in large projects that will pay off in the distant future. Well, citizens can safely plan their life for a more or less long-term perspective.
Photo: Dmitri ORLOV
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