The discount rate is an important indicator, which forms the main aspects of the credit institutions.So, it is the interest rate set by the National Bank of the country for the rest of the commercial banks.Its size depends on the monetary policy pursued by the state, and the goals that it pursues.
For example, at high rates of inflation discount rate increases.Consequence is a rise in price of credits, issued by the National Bank.Accordingly, the borrowings of commercial banks have become much more expensive, reduced demand for the provision of credit services.So uncomplicated way the government can reduce the money supply, and then the withdrawal of the cash from circulation.This helps to stop the growth of inflation and keep it within certain limits.
discount rate - is a tool of the central bank by which it regulates the main processes of the economy, for example, supports the national currency at the appropriate level, controls the volume of money in circulation, forms the country's international reserves.In practice, it is rarely seen a dramatic increase or decrease in interest rates, as a rule, allowed minor, but no less effective adjustments.
When the discount rate is increased, the exchange rate stabilized.In addition, commercial banks lack of credit resources, because the central bank loans are expensive.It was at this time increases the bank interest rate on deposit operations.The proposed terms more favorable to the population transfer available capital to the deposit account than to invest in production and financial activities.Thus, there is a withdrawal of money from circulation for a certain period, and therefore the decline in inflation.This method is used during the policy called "expensive" money.
A policy of "cheap money" implies the existence reduced the refinancing rate.She introduced when there was a decline of industrial activity in the country.The government understands the need to maintain a certain sector and creates conditions for credit institutions that reduce interest rates on loans, especially for businesses.This happens the flow of capital into the industry, or the scope of specific services, and stimulated the development of the industry.
should be noted that these measures are considered to be effective, but there are only a certain period of time.A further increase or decrease in rates leads to negative consequences.Unfortunately, every event has some drawbacks.Regulation of the refinancing rate is also "the other side", which is as follows:
- raise interest rates provokes a reduction of wages, business leaders are forced to cut jobs.All this naturally increases the burden on labor exchanges and creates tension in society.
- reduced rates, of course, gradually the country out of the crisis, as it promotes the development of the industrial sector.Moreover, the state thus support small and medium entrepreneurship, allowing them to stay afloat even in the most difficult situations.But only for a while, and then experienced rapid inflation growth, which jeopardizes the entire economy.
can be concluded that the discount rate is a good tool for employees in order to achieve the main objectives of monetary policy, but they need to manage competently.
