For some time the term “key rate” flashed in the headlines of journalistic publications. We are talking about the key rate of the Federal reserve system of the United States. Fed rate for several years was in the range of 0-0,25%. Money at such rate in the U.S. economy are almost free. In September, the fed was close to raising your bid, but still did not. Finally on 16 December 2015, the first time in nine years, the U.S. Federal reserve raised the rate by 0.25 percentage points.
At the end of April 2016 at the meeting of the Federal reserve Board had another discussion about a possible rate change, but she was left at the previous level of 0.25-0.50%. By the way, Donald trump during his campaign drew attention to the fact that the increase in the key rate, the fed can allow the us to default. IMF managing Director Christine Lagarde is also afraid of the consequences of such an increase, but she says that this could lead to the collapse of the world economy.
In the Russian language along with the term “key rate” as synonyms uses terms “target rate”, “base rate”. Briefly, this refers to a guideline set by the Central Bank of the country. Proceeding from it, the participants of monetary relations, set their own interest rates on loans, deposits, securities. In the documents of the International monetary Fund (IMF) this reference point is called the Central bank policy rate (CBPR). Literally – “the interest rate policy of the Central Bank”. However, uniformity in understanding what the “key rate”, not, and, accordingly, there is no full comparability of the indicators CBPR different countries. In some countries, “key rate” is “rate”, “refinancing rate”, “rate on REPO transactions” and etc.
What exactly is meant by the key rate of the fed? On the website of this institution we read that it is the Federal funds rate. American banks are required to keep a certain part of their reserves in a Central Fund, the Federal reserve – this part is called Federal funds. Their volume is changing daily, and banks with surplus reserves can provide the surplus banks, the level of reserves which fell below normal. The rate at which banks carry out loan operations, and is the key rate, or the rate on Federal reserves. Operations Committee on the open market (Open Market Committee) of the fed of 12 people vote for the target rate for the Federal reserves depending on economic conditions. Once again I will remind that since December 2008 the rate was in the range of 0-0,25%. Every day determined by the actual rate value was changed from 0.07% to 0.22%. Such a low rate has never been, even in years of economic crisis 30-ies of XX century. Money in the Federal reserves have become virtually free. According to leaders of the fed, it was supposed to help banks and the entire economy of the United States to overcome the consequences of the financial crisis in 2007-2009 For comparison: in June 2006 the key rate of the fed after 17 consecutive increases (for two years) had reached the highest point of 5.25%. However, this is not a record. The highest rate was recorded in 1980-1981, when at the helm of the fed Paul Volcker stood up and America began to move on the rails “Reaganomics”. Then the rate rose to 20%.
Although the Federal funds rate applies only to short-term loans between banks, it is the basic quantity that determines the cost of borrowing for businesses and individuals. In American banking practice is widely used the concept of “privileged interest rate”, which is assigned to commercial banks for the best customers. It is used to determine interest on car loans, loans for small business financing and lines of credit secured by residential real estate, credit cards. Traditionally, the privileged rate was three percentage points above the Federal funds rate, banks almost automatically (with some exceptions) follow the changes undertaken by the fed. When in June 2006 the Federal funds rate was raised by 0.25 percentage points, many banks have raised preferred bet to the same value. And when in December 2008 the rate was reduced by 0.75 percentage points, the banks have lowered the preference rate from 4 to 3.25%. At this level it stayed for exactly 7 years. I suppose that with the new year, American banks will establish a preferred rate at the placket of 3.50%. Even such an increase in interest rates can destabilize the economic situation in the United States. The total amount of private debt of Americans on credit now is 17 trillion. dollars., moreover, 82% of the debt on a mortgage, and nearly 8% – debt loans. The rest – debts on credit cards, auto and consumer loans, etc. the Cost of Americans today is 2.5–3 trillion. dollars a year exceed actual revenues. There is a threat not only maturity, but even the maintenance and refinancing of such a huge debt. Equally disturbing picture emerges of corporate debt of the American economy.
But as the key rate the fed look at the background of other countries? The IMF is trying to carry out such comparison, approximately six dozens of countries. Related Fund include the leading countries of the West (“gold billion”), and the periphery of world capitalism (PMK). It is the developing countries of Asia, Africa, Latin America, and also the new States that emerged in the post-Soviet space. Picture two groups of countries is very different. Below are tables for two groups of countries, based on surveys of IMF for the period 2007-2014.
Table. 1.
The key rate of the leading Western countries in the period 2007-2014 (annual average, %)
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Country
2007
2008
2009
2010
2011
2012
2013
2014
USA
4,25
0,13
0,13
0,13
0,13
0,13
0,13
0,13
Eurozone countries
Of 4.00
2,50
Of 1.00
Of 1.00
Of 1.00
0,75
0,25
0,05
UK
5,50
Of 2.00
0,50
0,50
0,50
0,50
0,50
0,50
Canada
4,25
1,50
0,25
Of 1.00
Of 1.00
1,25
1,25
1,25
Switzerland
3,25
Of 1.00
0,75
0,75
0,25
0,25
0,25
0,25
Sweden
3,50
Of 2.00
0,50
0,50
Of 1.91
1,14
0,75
0,00
Denmark
Of 4.00
3,50
Of 1.00
0,75
0,75
0,00
0,00
0,00
The data of table.1 suggests that in economically developed countries of the West for eight years (starting in 2007) there was a steady decline in interest rates of Central banks. The process has gone so far that in two countries (Denmark and Sweden) rate was zero, i.e. the Central banks actually began to give money to commercial banks for free. But in the Eurozone the rate in 2014 was close to zero.
Draws attention to itself and this feature of interest rate policy of Central banks of developed countries, as the stability of key interest rates. For example, the average key rate of the Federal reserve system held at a bar for eight years – from 2008 until December 2015. The Bank of England holds interest rate at the same level for almost seven years (since 2009).
In the group of developed countries, most Central banks kept the rate at a level not exceeding 1%. The highest interest rates in this group were recorded in Australia (2,50%) and New Zealand (3.50 percent).
Table. 2.
Rates of some key peripheral countries of world capitalism in the period 2007-2014 (annual average, %)
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Country
2007
2008
2009
2010
2011
2012
2013
2014
Congo
22,50
40,00
70,00
22,00
20,00
Of 4.00
Of 2.00
Of 2.00
Ghana
13,50
17,00
18,00
13,50
12,50
15,00
16,00
21,00
Chile
6,00
8,25
0,50
3,12
5,25
5,00
4,50
Of 3.00
Brazil
11,25
13,75
8,75
10,75
11,00
7,25
10,00
11,75
Indonesia
8,00
9,25
6,50
6,50
6,00
5,75
7,50
7,75
Belarus
10,00
12,00
13,50
10,50
45,00
30,00
23,50
20,00
Kazakhstan
11,00
10,50
Of 7.00
7,50
5,50
5,50
5,50
5,50
Quite a different picture is observed in the group of peripheral countries of world capitalism. In many countries the average annual interest rates of Central banks sometimes measured in double-digit figures. The record value was achieved in the Congo, where in 2010 the figure was 70%. The Central Bank of this country was engaged in the lending banks under the frankly usurious interest. The average interest rates of the peripheral countries of world capitalism is more than an order of magnitude above the average interest rates of the countries of “Golden billion”.
Another feature of the PMK is the instability of the values of interest rates. In the course of one year can occur sudden rises or fall in interest rates. For example, in the Republic of Belarus in 2010, the average rate was equal to 10,50% (which in itself is a very high value), and the following year it jumped to 45%, i.e. more than 4 times. And in the Congo, on the contrary, in 2011-2012 there was a sharp decrease in the interest rate from 20 to 4%, that is five times. From the presented in table. 2 the seven most stable countries was the interest rate in Chile. Although in this country in 2008-2009 there was a sharp transition from 8.5 to 0.5%, and in the following year had increased to 3.12%.
Table. 3.
The ranking of countries with the lowest key interest rates (2014)
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Place, No.
Country
Annual average rates, %
1-2
Denmark
0
1-2
Sweden
0
3
Bulgaria
0,02
4
Eurozone countries
0,05
5
USA
0,13
6-8
Switzerland
0,25
6-8
Israel
0,25
6-8
Saudi Arabia
0,25
9-10
UK
0,50
9-10
Bahrain
0,50
In table. 3 presents the country with minimal interest rates. Some exceptions are the countries of “Golden billion”. The group leader is actually not 10 countries, and 28, as the Euro area comprises 19 member States. Thus, in the group of leaders from 28 countries of “Golden billion” are 24.
Other countries from the group leaders of Bulgaria, Israel, Saudi Arabia and Bahrain. Abnormally low interest rates are in Bulgaria, one of the most underdeveloped countries in Europe. Moreover, this “anomaly” occurred in 2008-2009, when rates fell from 5.77 to 0.55, and a year – to 0.18%. As for Israel, he has interest rates in previous years were comparable with rates of the European States were in the range of 1,0-2,5%). Saudi Arabia and Bahrain are oil-producing countries, where interest rates are traditionally low.
We presented a comparative picture of the interest rates for 2014. But it looked like a painting at the end of 2015: the ECB – to 0.05% (main refinancing rate); the national Bank of Denmark – 0,50% (the rate of financing the deficit of liquidity); the Swiss national Bank is 0.05% (lending rate). While the Swedish Central Bank REPO operations received a negative rate of minus 0.35 percent. According to the latest reports, Denmark’s key interest rate has dropped to a value of minus 0.65 percent . The transition of Central banks in the negative zone is a symptom of the fact that classical capitalism with its banking interest rooted in the past.
Table. 4.
The ranking of countries with the maximum key rates (2014).
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Place, No.
Country
Annual average rates, %
1
Gambia
22,00
2
Ghana
21,00
3
The Republic Of Belarus
20,00
4
Tajikistan
18,70
5
Russian Federation
17,00
6
Suriname
12,50
7-8
Mongolia
12,00
7-8
Sao Tome and Principe
12,00
9
Brazil
11,75
10
Belize
11,00
In table. 4 shows the rating of the first 10 countries with the highest interest rates. Some of these countries appeared in the “top-10” in previous years. Among the permanent “leaders” – Ghana, the Republic of Belarus, Tajikistan. Thus, the Republic of Belarus in 2007, he took 13th place in the ranking. In the following years: 2008 – 10th, 2009 – 5th, 2010 – 1st 2011 – 1st 2012 – 1st 2013 – 1-E.
The top ten “Champions” on interest rates periodically enters and Russia. 29 April 2016 (two days after the fed meeting, at which the key rate was left unchanged), the Central Bank of Russia also decided to leave its rate unchanged at 11%. Russia on this indicator is currently at the level of Belize and slightly below the level of Brazil 2014. The Central Bank of Russia periodically makes statements about the possible percentage decline, but this is not happening. In the result, the Russian economy is suffering from monetary suffocation.
At the two-digit magnitudes of the key rates of Central banks interest on Bank loans to individuals and legal entities in the periphery of world capitalism (PMK) to be usurious. They stifle the population and the economy, pushing the country’s PMK on the attraction of foreign capital and loans. Ultimately, the growth of external debt and the increasing dependency of the IGC countries from the “Golden billion” countries with their cheap or almost free money.
