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Interest Rates

Interest RatesApproaches to the formation of the central bank interest rates on transactions as reducing inflation and ensuring the sustainability of the national currency.

In terms of the particular state interest rate policy has its own unique structure. The main instruments of the central bank's interest rate policy are the basic refinancing rate and bank rates on transactions in financial markets. The refinancing rate in the evolution of the monetary system has become more indicative measure, giving the economy a reference value of national currency in the medium term. Although it certainly can not deny the fact that the refinancing rate has a significant influence on the level of interest in the economy.

Interest rates on central bank operations in the financial market (hereinafter - the rate for operations) - operational tool of interest rate policy. For him the bank conducts transactions in the financial market, carry out refinancing and liquidity withdrawal from banks, thereby forming a level of profitability in different market segments.

Central Bank to conduct interest rate policy adheres to the principles and approaches focused on specific goals, has a management strategy. Some of these approaches we will try to cover in this article, because it is the management of interest rates on bank operations cause a significant number of issues.

Conducting operations in the financial market and setting interest rates for instruments of monetary policy, the bank not only forms a corridor of fluctuations in interest rates in the economy, but also creates market expectations, which will impact on economic development in the short term through the effects on the motivation of banks to manage their resource flows, including the decision to build the resource base and the placement of credit and other resources. After all, the bank not only the central body monetary, but also an active participant in the financial market, whose work has a significant effect of macroeconomic and interest rate policy is probably the most important instrument of policy.

By adjusting the interest rates on the instruments, the central bank seeks to address these very specific objectives of monetary policy:

- Formation of return (level corridor and vibration) on foreign currency instruments to the sustainable excess returns on money market instruments over the yield on foreign currency transactions as in the medium term and short periods of time, including taking into account the estimated foreign exchange risks;

Conducting monetary policy, central bank of any country uses some leverage, it has tools that allow it to achieve its targets. Interest rate policy is one of those tools inherent in virtually all of the monetary systems of the world. By adjusting the value of money through the interest rate the central bank can influence the most important macroeconomic variables: the level of savings and investment in the economy, inflation, demand for financial assets, capital flows, etc.

Maintaining the rate of interest at an optimum level can ensure the stability of the monetary system of the country, promotes economic development and the achievement of targets of monetary policy the central bank of, for example, the formation of return on bank operations, ensuring the involvement of public resources (primarily) and business entities and minimizing the risk of outflow of customers;

- Formation of return on bank operations, ensuring the availability of bank credit for working effectively entities;

- To prevent the flow of substantial amounts of speculative capital and the formation of market returns, which can not be assured of the national economy and banking system on a sustainable basis;

- Encouraging banks to solve the problem as quickly as the current liquidity;

- The formation of market expectations that the practice of establishing rates persist over the medium term.

It should be noted that the central bank carries out transactions in financial markets without commercial approach and is not intended to receive income or limitation of damages (eg, operations for receiving funds in deposits). Bank's operations can be both profitable and unprofitable character, depending on the direction of its ongoing operations in the market. The question of profitability of operations is not put to the fore by any central bank. The main thing - it's strategic goals of monetary policy.

It should be noted another important aspect of the current interest rate policy: in most advanced economies, interest rates on instruments of monetary policy the central bank are formed around the refinancing rate.

The influence of central bank interest rates on financial markets is manifested mainly in the process of bank operations to regulate the current liquidity of the banking system. Conducting operations in support of or withdrawal of liquidity, the bank conducts transactions with banks to set interest rates and affects the interest of the latter in carrying out an operation, which in turn has an effect on the value of resources in the banking system and banks' activities in carrying out operations with financial assets, sets benchmarks fluctuations in interest rates in the banking system, and hence the economy as a whole. Regulation of interest rates the bank pays close attention, and their structure is reviewed at least once a week. The main regulatory body taking the decision to change interest rates for some operations, Operations Committee is the central bank.

To analyze the nature of the effect of rates on transactions above all need to re-draw the line between interest rates and withdrawal of liquidity support, as they are multidirectional nature of exposure.

By adjusting the interest rates on its operations, the bank adheres to certain principles and approaches. Some of them are reflected in the main directions of monetary policy for the next year and the principles regulating the current liquidity of the banking system. However, this list is more extensive. Among the key principles in setting interest rates are the following.

1. Formation of a corridor for fluctuations in market interest rates. By adjusting the interest rates on operations, the bank aims to form a certain level of interest rates on credit and deposit market in the banking system, which, in his view, will ensure the attractiveness of the currency against foreign currencies will help to build savings in the economy and ensure that the process of expanded reproduction. This goal is achieved, including through the establishment and the lower and upper limits on interest rate instruments to support or withdrawal of liquidity in the banking system, which largely forms the corridor of fluctuations in interest rates in the banking system and contributes to achieving that goal.

2. Positivity rates on instruments of liquidity support in real terms. Protecting and ensuring the stability of the currency against foreign currencies - the strategic objective of monetary policy at the present stage, set the Banking Code. Providing a positive rate of return on assets is a necessary condition for the implementation of the national currency of the basic functions of money: a store of value, medium of exchange and measure of value.

Thus, we can say that the main principles that guide the central bank in setting interest rates for transactions is the desire not to supplant the market and ensure the redistribution of liquid assets within the financial market to competition through market-based instruments with a minimum emission involving the bank. Strict adherence to the principles announced in the monetary control and interest rate policy approaches and policy forms of liquidity support normal market expectations, the banking system to stimulate the efficient reallocation of funds and creation of the resource base without centralized resource bank, and also allows you to maintain stable operation of the currency and stock market while building the state reserves.

In conclusion, we note the factors that will determine the prospects in the regulation of central bank interest rates.

1. Preservation of a uniform percentage of each group of tools to support liquidity.

2. Reducing the spread of profitability. As rates of inflation and the emergence of resistant preconditions of macroeconomic stabilization, together with a general lowering of nominal interest rates as the market and bank rates will fall and yields spreads between money market instruments, including yield between the refinancing and interest rates on instruments , the yield on foreign currency assets, etc.
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