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The Central Bank did not change the key rate. What will happen to deposits and loans?

Date: July 15, 2024 Time: 04:18:15

The Central Bank’s main argument is that inflation, although it is slowing down, is not yet very stable

Photo: Mikhail FROLOV

This Friday a meeting of the Board of Directors of the Central Bank on monetary policy was held. The Central Bank was again deciding what to do with the key interest rate. But this time there was practically no intrigue. The vast majority of analysts believed that the rate would remain at the same level: 16% annually. That’s exactly what happened.

Inflation is slowing, but slowly

The Central Bank’s main argument is that inflation, although it is slowing down, is not yet very stable. First there is a slowdown, then there is another increase. According to Rosstat, since the beginning of the year prices have increased by 2.33%. At this rate, by the end of the year it could be 7% or even 8%. And the Central Bank’s objective remained unchanged: 4% for the year. Maybe a little more. But certainly not twice.

And the key interest rate is precisely one of the main tools that can be used to influence inflation. After all, the rates on both deposits and loans depend on it. The higher the rates, the more profitable it will be to save and get good interest on your money, rather than borrowing at exorbitant rates.

As a result, according to economic theory, demand in the economy in this case does not grow so quickly and equilibrium with supply is gradually restored. And this ultimately curbs inflation.

Are banks starting to reduce deposit rates?

Not precisely. In fact, in mid-March there was a slight decline. One tenth percent. Then analysts saw that after the acceleration in January, prices barely grew in February. So we expected the Central Bank to begin the cycle of lowering the key rate a little earlier. But the Central Bank said that these are all temporary factors. And most likely they will start lowering the interest rate in the middle of the year, but not in the spring.

At the same time, lending rates, on the contrary, have increased slightly. At first, banks tried not to raise rates too much so as not to scare away potential customers. Well, we were hoping that the key interest rate wouldn’t stay at the top for long. But you can’t go against the general trend, so loan rates have increased a little. For example, the price of cash loans has increased on average by 0.5% annually (for more information on average rates, see the chart).

Whats Next?

Sooner or later, the Central Bank will begin a cycle of reducing the key rate. And along with this, the rates of various financial products will drop. It is true that a sharp drop should not be expected. The 2022 scenario, when the key rate fell from 20% annually to 7.5%, will definitely not happen again. The volume of budget expenditures in the country is high and the dollar exchange rate is also affecting. When the money supply in a country is large and growing, and purchasing imported goods is difficult and expensive, there is no need to expect a sharp slowdown in inflation. This means that the Central Bank will reduce the reference interest rate very gradually.

Hence the conclusion: in the next six months or a year, saving money and keeping it in deposits will be much more profitable than taking out loans and buying something with borrowed money.

What are the average rates in banks (according to the Central Bank)?

For deposits: from 12 to 14.7% per year (depending on the term).

For mortgages: 17.5% annually (excluding preferential programs).

For car loans – from 10.9 to 18.4% per year (depending on the term).

For cash loans: 23.5% per year (excluding insurance).

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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