<p>I think the answer to your question does not require reference to economic theory as you are trying to understand why Russians cannot borrow at low rates. The prevailing high rates are not there for suppressing business activity, etc. This is something to do with the risk appetite of Russian commercial banks when dealing with domestic businesses. </p>

<p>Why are Russians facing rates as high as 25% when the base rate is 9%?</p>

<p>Central Bank's current base rate is 9%, also called repo rate. This rate is the main monetary tool used by CB to influence the interbank interest rates and the interest rates for loans, mortgages and savings. As you can see, the CB rate is low, but the commercial banks are adding huge premium (here it is 16%) to the base rate when lending to domestic businesses. Perhaps, they may face high default risks, political risk, high inflation, exchange rate risk, etc.</p>

<p>As a side note, this is a typical characteristic of a transition economy, that's said, Russians will face relatively high interest rates till they gain 'developed' status.</p>

CC BY-SA 3.0
2017-08-25T09:29:52.560Z
I don't think the last statement is entirely true. Compare historical Brics interest rates [here](https://www.econstor.eu/bitstream/10419/50792/1/670800821.pdf). Russia is characteristically higher than the rest. Also, look at [lending rates](http://data.worldbank.org/indicator/FR.INR.LEND) data from the World Bank. Bolivia has a lower rate than Belgium. Chile has a similar rate than France. Estonia has a lower rate than Finland. I think the answer is more complex than what you make to believe.
luchonacho
CC BY-SA 3.0
2017-08-25T10:53:16.287Z
Russians will face relatively high interest rates till they gain 'developed' status

So russia will remain stay crypto colony untill forever?
Marat Zakirov
CC BY-SA 3.0
2017-08-26T00:31:40.730Z
@luchonacho We always have outliers in the data, don't we? Albania, Azerbaijan, Lithuania, FYR Macedonia, Poland, Kazakhstan, Uzbekistan, etc. have had high interest rates for a long time. In general, a typical emerging economy experiences rapid productivity growth due to economic restructuring as a result interest rates (lending rates) remain high. The World Bank data you quoted must be Central Bank official rate data.Marat Zakirov appears to be interested in interest rates quoted by local bank on loans to local businesses and consumers.
london
CC BY-SA 3.0
2017-08-26T00:33:22.087Z
@MaratZakirov, I see you have a good sense of humor. Russia's economy gained a bit of stability only after Putin came to power, then the sanctions since 2014 and problems galore again. Perhaps, one day Rouble will be accepted as a reserve currency as Putin envisiages.
london
CC BY-SA 3.0
2017-09-12T08:34:04.547Z
@london Because of high interest rate and RCB policy overall we can't develop industry with high added value and that is why continue to be just a resource colony for Europe. Putin is an economic idiot ("thanks" to west which praises Nabiulina) there is no hope on changes until he and his friends rule.
Marat Zakirov
CC BY-SA 3.0
2017-08-24T18:15:06.410Z
2017-08-24T18:15:06.410Z
london
<p>A conventional answer would be that interest rates represents the rate of return Russian banks agree upon to lend money to physical clients/enterprises. If you believe this, you can create the following explanations. Two things come to my mind.</p>

<p><strong>Option A: High Costs</strong></p>

<p>Russian banks are unproductive and poorly managed. Their operational business is so inefficient that forces the bank to add a high premium on the interest rate.</p>

<p><strong>Option B: High Risks</strong></p>

<p>Russian banks have to lend money to clients with high risks. What would you do as a bank if you face many clients with high risks? You charge a higher price so in case somebody fails you may cover the sunk costs by revenues generated from credits to other clients. This is a simple way to `compensate' for uncertainty.</p>

<p>You can have a combination of two of course and that could already explain some of the differences you observe in the world and in Russia as well. Note for instance, that financial sanctions decreased stability of the Russian banks in a number of ways: a) enterprises (thus lenders) do not have access to external finance anymore and given the record low interest rates in Europe it means less access to cheap finance b) banks cannot finance on the external market themselves; thus if you have a liquidity problem you have less sources to take finance from. </p>

<p>This is not the end of the story however, as banks usually differentiate the interest rates they charge depending on the type of product they offer and a type of client, who wants to lend. If they do a poor job at differentiating between good and bad borrowers, another option arises: </p>

<p><strong>Option C: Banks do poor job at separating the wheat from the chaff // Signalling does not work</strong></p>

<p>Imagine you have two type of borrowers: risky and non-risky. If you would have perfect information on everyone, you could easily charge interest rates according to how risky the business of clients is. Lower rate for a risk-free guy, higher rate for a risky guy. But reality is more complex: you do not know for sure. And here they sit and show their documents, balance sheets, profits and loss statements etc both giving an impression how brilliant their business is. Yet if you know (post factum) that half of you clients go bankrupt, what do you do? Well, you just charge a high interest rate for both of the guys! Maybe it will be the wrong guy who will take your loan in the very end but at least you'll get high interest payments before he goes bankrupt. Maybe it is exactly the case with Russian banks. That is, maybe they just do a horrible job at investigating how reliable business of their lenders is. That indeed might be the case because many of Russian banks expanded their business in mid-2000 on the boom of the consumer credits. And it is not a heavy job to do: broad consumer base, high diversification - just give money to everyone and be happy. Yet now, when income stagnates, the business model does not work that good anymore. What do you need to do? Well, you need to start working with the enterprises. But lending to them is more complicated if you want to know for sure: you need knowledge of how business operates, what business-risks are relevant, how responsible is the team, how the industry feels in general and the list goes on. Maybe most of Russian banks do not know how to do it good and therefore keep charging high interest rates.</p>

<p><strong>A Little Sidenote</strong></p>

<p>Keep in mind two things however: 
a) My answer comes from the micro-perspective. The macro guys would probably point out on the issues related to capital flows and macro regulation,
b) You better be clear which numbers you are reffering to and where do they come from. I've just checked the web-site of Sberbank. The web-site reports the following borrowing rates (minimum interest rate charged per annum): consumer credit (12.9%), morgage for flats in built houses (8.9%), security-free SME loan (17%), securitized SME loan (14.52%), SME loan for investment purposes (12.2%). Yes, these are minimal rates meaning that the actual rates are higher. But note two things: they are very far from 25% you mention (and I bet that the rates in private banks have to be lower if they want to compete with Sberbank) and there is a high variation between them: the maximum difference is around 8%. And we are talking just about one bank. </p>

<p>Thus, when you claim that the interest rates in Russia are way higher than in other developing countries you have to be sure that you compare apples with apples. And that you compare the averages of the apple sizes in both cases and do not take the maximum size on one side and the minimum size on the other. Hopefully you will find some of my explanations trustworthy ;)</p>

CC BY-SA 3.0
2017-10-24T08:08:21.193Z
Artem, first of all thank you for your response. Macrospectivly speaking could you ever imagine any industrial plant (I am not even speaking about sci-fi plant for modern microchips etc) which can handle even 8% of interest rate? It is nonsense... The only business could take such high interest rate credit is trade, market speculation, etc. So making such high rate CBR actually forbids industry in Russia, why, for what purpose? The only segments of Russian real economy that is growing are segments with state funding with ~0% like military-industrial complex
Marat Zakirov
CC BY-SA 3.0
2017-10-23T22:39:46.110Z
2017-10-23T22:39:46.110Z
Artem Kochnev
<p>Answering the questions on the title, high-interest rate of the central bank (or increasing the policy rate by the central bank) means that they are trying to suppress the economic activity in order to avoid high inflation. In most of the countries, the purpose of the central bank is to stabilize the price fluctuation. When they increase its rate, it will move other interest rates through financial agencies' activity. Higher interest rate can prevent firms to borrow more, thus the economy might become sluggish.</p>

<p>As for your remarks about banking rate, there are two things to mention. Firstly, interest rate depends on its duration. Usually longer the duration, higher the interest rate. The policy rate is usually a very short one, so it might be natural that the policy rate and bank rate differs. Second, the policy rate can be to some extent thought as a risk-free rate while banking rate might include risk premium of that bank. This is why the bank rate is higher than policy rate.</p>

CC BY-SA 3.0
2017-08-24T14:08:11.287Z
means that they are trying to suppress the economic activity in order to avoid high inflation

If you suppress economic activity you may also suppress (and actually you do) goods production.

do:
    1) Hight inflation
    2) Hight rates
    3) Less economic activity
    4) Lower goods production
repeat until economy is not dead
Marat Zakirov
CC BY-SA 3.0
2017-08-24T14:45:49.117Z
The CB **is not trying to suppress economic activity**. Interest are in the low side of the cycle. Look [here](http://www.global-rates.com/interest-rates/central-banks/central-bank-russia/cbr-interest-rate.aspx).
luchonacho
CC BY-SA 3.0
2017-08-25T10:52:03.630Z
is not trying to suppress economic activity

Tell this to previous commenter
Marat Zakirov
CC BY-SA 3.0
2017-08-24T13:47:08.197Z
2017-08-24T14:37:30.823Z
2017-08-24T14:37:30.823Z
Roy_Oishi
<p>In Russia we currently have 11% of Central Bank's interest rate and you can get credit in commercial bank for about 25% in year. Why are interest rates so high?</p>

CC BY-SA 3.0
2015-09-14T17:33:11.100Z
Is the question "For what reasons we may observe a "high" Central Bank interest rate"? If yes, the question is too broad -if, that is, one manages to characterize what "high" means (high compared to what?). Please reconsider narrowing down your question: For example, was the CB interest rate in Russia much lower a few years ago and you want to know why it increased? Are there some macroeconomic information that you can provide on the Russian economy (growth, inflation etc)? As is, your question has to be closed. Visiting http://meta.economics.stackexchange.com/q/164/61 could be a good idea.
Alecos Papadopoulos
CC BY-SA 3.0
2015-09-15T00:08:48.033Z
One reason your CB may have established higher interest rates is to entice Russian's to leave their money in the domestic (Russian) thereby mitigating  capital flight (since Russia's economy has been performing poorly and the value of the currency has fallen sharply).
123
CC BY-SA 3.0
2015-09-15T05:43:12.913Z
People what kind of buisness do you know which can survive under so much high interest rate? For the 25 years after CB was established we did not have a chance to take credit in comercial bank for less than 25% How economic could ever perform good in such conditions?
Marat Zakirov
CC BY-SA 3.0
2017-12-14T23:41:30.883Z
It should be noted that the ruble has traditionally had an inflation rate around 8% (though varying wildly and peaking around 16% a couple of times in the past ten years).  Only in the past 6 months has the rate fallen to what would be considered "normal" for most western currencies.
Hot Licks
CC BY-SA 3.0
2017-12-15T07:29:10.440Z
@HotLicks You speak about consequence but I am asking about cause. The cause is CBR macrofinance polirtics. Again I ask same stupid question which I am pretty tired to ask. Give me an example of real sector industry (which generates real physical product or hi tec software) which can survive under > 12% of interest rate? If your real sector dies you will suddenly get high inflation this is 2x2=4. Look at year incomes of Russian CBR and bank sector its ENORMOUSLY HIGH.
Marat Zakirov
CC BY-SA 3.0
2017-12-15T13:59:45.263Z
@MaratZakirov - High inflation will necessarily cause high interest rates.
Hot Licks
CC BY-SA 3.0
2017-12-16T11:21:09.617Z
@HotLicks You did not answer my question. I kindly repeat it fow you

 Again I ask same stupid question which I am pretty tired to ask. Give me an example of real sector industry (which generates real physical product or hi tec software) which can survive under > 12% of interest rate?
Marat Zakirov
CC BY-SA 3.0
2017-12-16T13:36:57.570Z
@MaratZakirov - Many businesses have difficulty surviving with 8% inflation.  It's very difficult to "optimize" your business process with that much price instability.  Russian banks don't have trouble with this since they are promoting a CEOcracy that benefits from such instability -- there is little incentive for them to keep rates low.  When inflation is low and the economy is otherwise stable many small businesses can slowly self-fund to adjust and grow, and larger companies can sell shares, so they don't need conventional loans.
Hot Licks
CC BY-SA 3.0
2017-12-16T21:37:35.783Z
@HotLicks   I must state you again did not answer my simple question I am going tired to repeat it again and again. I do not need abstract reasonings. I want to see a concrete answer to a specific question as is accepted in any exact science such as mathematics or physics.
Q: Give me an example of industry (not business - INDUSTRY, ok?) which can handle 12% of interest rate (from commerce bank, not only 8% of CBR) year after year.
Marat Zakirov
CC BY-SA 3.0
2017-12-16T21:41:19.530Z
@MaratZakirov - If inflation is 8% and the interest rate is 12%, then the borrower is paying an effective rate of 4% -- perhaps a hair high (for a good risk) but not outrageous.  On the other hand, if the interest rate is 25% (with 8% inflation) then the effective rate is 17%, and that *is* a usurious rate.  The only people who will pay it are those who are stupid or somehow "trapped", or those who are making so much (in illegal dealings) that the rate is worth it.
Hot Licks
CC BY-SA 3.0
2017-12-17T10:09:16.863Z
@HotLicks If INDUSTRY borrow money it spend it on tools and plants with a looooooooong period of payback. Industry is not a some kind of "shop for selling Turkish panties" what is why your the arguments are fundamentally wrong. Practice is the ONLY criterion of truth. What is why I demand an example from you of industry which handles expensive loans (> 12%). Just stop making sophistry, just give me an example which I will study (to check weather it is true example) wuth a great interest.
Marat Zakirov
CC BY-SA 3.0
2017-12-17T14:31:39.500Z
@MaratZakirov - You apparently are determined to get the "right" answer, even if it's wrong.
Hot Licks
CC BY-SA 3.0
2017-12-17T21:09:10.330Z
@HotLicks I want to get a valid answer. Example of valid answer: "12% Is cool cheap money loan, xiomi [hitachi, ford, GM, google or any other] live in such conditions for decades without any problems with no state subsidies".
Marat Zakirov
CC BY-SA 3.0
2017-12-17T21:17:14.520Z
Why do you demand an example when there aren't any?
Hot Licks
CC BY-SA 3.0
2017-12-18T09:41:52.443Z
@HotLicks OK
"Why do you demand an example when there aren't any?"

Is actually a VALID answer, thank you for that.

Next question why CBR makes such silly conditions in which bank sector of Russia and CBR itself actually makes huge, enormous profit but real sector dies without cheap investments?
Marat Zakirov
CC BY-SA 3.0
2017-12-18T13:14:20.350Z
Who says that the bank sector even cares about the health of the "real" sector?  (And, by inference, where is it written that the government cares about the "real" sector?)
Hot Licks
CC BY-SA 3.0
2017-12-18T14:08:40.497Z
@HotLicks CBR not just part of "bank sector" it is part of government. So you do think that the Russian government is just colonial administration of the West?
Marat Zakirov
CC BY-SA 3.0
2017-12-20T02:24:28.923Z
Even more than in the US, the government and much of the banking sector in Russia operates to benefit the rich.
Hot Licks
CC BY-SA 3.0
2017-12-20T09:57:07.903Z
Totally agree. Like in the British Empire, the exploitation of other countries by the metropolis does not mean that the life of ordinary people in this metropolis will be prosperous and dignified.
Marat Zakirov
<finance><inflation><interest-rate>
Why are interest rates so high in Russia?
Marat Zakirov
# Why are interest rates so high in Russia?

(Asked by: username_0 on 2015-09-14)

In Russia we currently have 11% of Central Bank's interest rate and you can get credit in commercial bank for about 25% in year. Why are interest rates so high?

**Tags:** finance, inflation, interest-rate
> **Comments:**
> **username_1**: Is the question "For what reasons we may observe a "high" Central Bank interest rate"? If yes, the question is too broad -if, that is, one manages to characterize what "high" means (high compared to what?). Please reconsider narrowing down your question: For example, was the CB interest rate in Russia much lower a few years ago and you want to know why it increased? Are there some macroeconomic information that you can provide on the Russian economy (growth, inflation etc)? As is, your question has to be closed. Visiting http://meta.economics.stackexchange.com/q/164/61 could be a good idea.  
> **username_2**: One reason your CB may have established higher interest rates is to entice Russian's to leave their money in the domestic (Russian) thereby mitigating  capital flight (since Russia's economy has been performing poorly and the value of the currency has fallen sharply).  
> **username_0**: People what kind of buisness do you know which can survive under so much high interest rate? For the 25 years after CB was established we did not have a chance to take credit in comercial bank for less than 25% How economic could ever perform good in such conditions?  
> **username_3**: It should be noted that the ruble has traditionally had an inflation rate around 8% (though varying wildly and peaking around 16% a couple of times in the past ten years).  Only in the past 6 months has the rate fallen to what would be considered "normal" for most western currencies.  
> **username_0**: @HotLicks You speak about consequence but I am asking about cause. The cause is CBR macrofinance polirtics. Again I ask same stupid question which I am pretty tired to ask. Give me an example of real sector industry (which generates real physical product or hi tec software) which can survive under > 12% of interest rate? If your real sector dies you will suddenly get high inflation this is 2x2=4. Look at year incomes of Russian CBR and bank sector its ENORMOUSLY HIGH.  
> **username_3**: @MaratZakirov - High inflation will necessarily cause high interest rates.  
> **username_0**: @HotLicks You did not answer my question. I kindly repeat it fow you   Again I ask same stupid question which I am pretty tired to ask. Give me an example of real sector industry (which generates real physical product or hi tec software) which can survive under > 12% of interest rate?  
> **username_3**: @MaratZakirov - Many businesses have difficulty surviving with 8% inflation.  It's very difficult to "optimize" your business process with that much price instability.  Russian banks don't have trouble with this since they are promoting a CEOcracy that benefits from such instability -- there is little incentive for them to keep rates low.  When inflation is low and the economy is otherwise stable many small businesses can slowly self-fund to adjust and grow, and larger companies can sell shares, so they don't need conventional loans.  
> **username_0**: @HotLicks   I must state you again did not answer my simple question I am going tired to repeat it again and again. I do not need abstract reasonings. I want to see a concrete answer to a specific question as is accepted in any exact science such as mathematics or physics. Q: Give me an example of industry (not business - INDUSTRY, ok?) which can handle 12% of interest rate (from commerce bank, not only 8% of CBR) year after year.  
> **username_3**: @MaratZakirov - If inflation is 8% and the interest rate is 12%, then the borrower is paying an effective rate of 4% -- perhaps a hair high (for a good risk) but not outrageous.  On the other hand, if the interest rate is 25% (with 8% inflation) then the effective rate is 17%, and that *is* a usurious rate.  The only people who will pay it are those who are stupid or somehow "trapped", or those who are making so much (in illegal dealings) that the rate is worth it.  
> **username_0**: @HotLicks If INDUSTRY borrow money it spend it on tools and plants with a looooooooong period of payback. Industry is not a some kind of "shop for selling Turkish panties" what is why your the arguments are fundamentally wrong. Practice is the ONLY criterion of truth. What is why I demand an example from you of industry which handles expensive loans (> 12%). Just stop making sophistry, just give me an example which I will study (to check weather it is true example) wuth a great interest.  
> **username_3**: @MaratZakirov - You apparently are determined to get the "right" answer, even if it's wrong.  
> **username_0**: @HotLicks I want to get a valid answer. Example of valid answer: "12% Is cool cheap money loan, xiomi [hitachi, ford, GM, google or any other] live in such conditions for decades without any problems with no state subsidies".  
> **username_3**: Why do you demand an example when there aren't any?  
> **username_0**: @HotLicks OK "Why do you demand an example when there aren't any?"  Is actually a VALID answer, thank you for that.  Next question why CBR makes such silly conditions in which bank sector of Russia and CBR itself actually makes huge, enormous profit but real sector dies without cheap investments?  
> **username_3**: Who says that the bank sector even cares about the health of the "real" sector?  (And, by inference, where is it written that the government cares about the "real" sector?)  
> **username_0**: @HotLicks CBR not just part of "bank sector" it is part of government. So you do think that the Russian government is just colonial administration of the West?  
> **username_3**: Even more than in the US, the government and much of the banking sector in Russia operates to benefit the rich.  
> **username_0**: Totally agree. Like in the British Empire, the exploitation of other countries by the metropolis does not mean that the life of ordinary people in this metropolis will be prosperous and dignified.  

---

## 3 answers

### Answer by username_4 on 2017-08-24. Score: 1

I think the answer to your question does not require reference to economic theory as you are trying to understand why Russians cannot borrow at low rates. The prevailing high rates are not there for suppressing business activity, etc. This is something to do with the risk appetite of Russian commercial banks when dealing with domestic businesses.

Why are Russians facing rates as high as 25% when the base rate is 9%?

Central Bank's current base rate is 9%, also called repo rate. This rate is the main monetary tool used by CB to influence the interbank interest rates and the interest rates for loans, mortgages and savings. As you can see, the CB rate is low, but the commercial banks are adding huge premium (here it is 16%) to the base rate when lending to domestic businesses. Perhaps, they may face high default risks, political risk, high inflation, exchange rate risk, etc.

As a side note, this is a typical characteristic of a transition economy, that's said, Russians will face relatively high interest rates till they gain 'developed' status.

> **Comments:**
> **username_5**: I don't think the last statement is entirely true. Compare historical Brics interest rates [here](https://www.econstor.eu/bitstream/10419/50792/1/670800821.pdf). Russia is characteristically higher than the rest. Also, look at [lending rates](http://data.worldbank.org/indicator/FR.INR.LEND) data from the World Bank. Bolivia has a lower rate than Belgium. Chile has a similar rate than France. Estonia has a lower rate than Finland. I think the answer is more complex than what you make to believe.  
> **username_0**: Russians will face relatively high interest rates till they gain 'developed' status  So russia will remain stay crypto colony untill forever?  
> **username_4**: @luchonacho We always have outliers in the data, don't we? Albania, Azerbaijan, Lithuania, FYR Macedonia, Poland, Kazakhstan, Uzbekistan, etc. have had high interest rates for a long time. In general, a typical emerging economy experiences rapid productivity growth due to economic restructuring as a result interest rates (lending rates) remain high. The World Bank data you quoted must be Central Bank official rate data.Marat Zakirov appears to be interested in interest rates quoted by local bank on loans to local businesses and consumers.  
> **username_4**: @MaratZakirov, I see you have a good sense of humor. Russia's economy gained a bit of stability only after Putin came to power, then the sanctions since 2014 and problems galore again. Perhaps, one day Rouble will be accepted as a reserve currency as Putin envisiages.  
> **username_0**: @london Because of high interest rate and RCB policy overall we can't develop industry with high added value and that is why continue to be just a resource colony for Europe. Putin is an economic idiot ("thanks" to west which praises Nabiulina) there is no hope on changes until he and his friends rule.  

---

### Answer by username_6 on 2017-10-23. Score: 0

A conventional answer would be that interest rates represents the rate of return Russian banks agree upon to lend money to physical clients/enterprises. If you believe this, you can create the following explanations. Two things come to my mind.

**Option A: High Costs**

Russian banks are unproductive and poorly managed. Their operational business is so inefficient that forces the bank to add a high premium on the interest rate.

**Option B: High Risks**

Russian banks have to lend money to clients with high risks. What would you do as a bank if you face many clients with high risks? You charge a higher price so in case somebody fails you may cover the sunk costs by revenues generated from credits to other clients. This is a simple way to `compensate' for uncertainty.

You can have a combination of two of course and that could already explain some of the differences you observe in the world and in Russia as well. Note for instance, that financial sanctions decreased stability of the Russian banks in a number of ways: a) enterprises (thus lenders) do not have access to external finance anymore and given the record low interest rates in Europe it means less access to cheap finance b) banks cannot finance on the external market themselves; thus if you have a liquidity problem you have less sources to take finance from.

This is not the end of the story however, as banks usually differentiate the interest rates they charge depending on the type of product they offer and a type of client, who wants to lend. If they do a poor job at differentiating between good and bad borrowers, another option arises:

**Option C: Banks do poor job at separating the wheat from the chaff // Signalling does not work**

Imagine you have two type of borrowers: risky and non-risky. If you would have perfect information on everyone, you could easily charge interest rates according to how risky the business of clients is. Lower rate for a risk-free guy, higher rate for a risky guy. But reality is more complex: you do not know for sure. And here they sit and show their documents, balance sheets, profits and loss statements etc both giving an impression how brilliant their business is. Yet if you know (post factum) that half of you clients go bankrupt, what do you do? Well, you just charge a high interest rate for both of the guys! Maybe it will be the wrong guy who will take your loan in the very end but at least you'll get high interest payments before he goes bankrupt. Maybe it is exactly the case with Russian banks. That is, maybe they just do a horrible job at investigating how reliable business of their lenders is. That indeed might be the case because many of Russian banks expanded their business in mid-2000 on the boom of the consumer credits. And it is not a heavy job to do: broad consumer base, high diversification - just give money to everyone and be happy. Yet now, when income stagnates, the business model does not work that good anymore. What do you need to do? Well, you need to start working with the enterprises. But lending to them is more complicated if you want to know for sure: you need knowledge of how business operates, what business-risks are relevant, how responsible is the team, how the industry feels in general and the list goes on. Maybe most of Russian banks do not know how to do it good and therefore keep charging high interest rates.

**A Little Sidenote**

Keep in mind two things however:
a) My answer comes from the micro-perspective. The macro guys would probably point out on the issues related to capital flows and macro regulation,
b) You better be clear which numbers you are reffering to and where do they come from. I've just checked the web-site of Sberbank. The web-site reports the following borrowing rates (minimum interest rate charged per annum): consumer credit (12.9%), morgage for flats in built houses (8.9%), security-free SME loan (17%), securitized SME loan (14.52%), SME loan for investment purposes (12.2%). Yes, these are minimal rates meaning that the actual rates are higher. But note two things: they are very far from 25% you mention (and I bet that the rates in private banks have to be lower if they want to compete with Sberbank) and there is a high variation between them: the maximum difference is around 8%. And we are talking just about one bank.

Thus, when you claim that the interest rates in Russia are way higher than in other developing countries you have to be sure that you compare apples with apples. And that you compare the averages of the apple sizes in both cases and do not take the maximum size on one side and the minimum size on the other. Hopefully you will find some of my explanations trustworthy ;)

> **Comments:**
> **username_0**: Artem, first of all thank you for your response. Macrospectivly speaking could you ever imagine any industrial plant (I am not even speaking about sci-fi plant for modern microchips etc) which can handle even 8% of interest rate? It is nonsense... The only business could take such high interest rate credit is trade, market speculation, etc. So making such high rate CBR actually forbids industry in Russia, why, for what purpose? The only segments of Russian real economy that is growing are segments with state funding with ~0% like military-industrial complex  

---

### Answer by username_7 on 2017-08-24. Score: 0

Answering the questions on the title, high-interest rate of the central bank (or increasing the policy rate by the central bank) means that they are trying to suppress the economic activity in order to avoid high inflation. In most of the countries, the purpose of the central bank is to stabilize the price fluctuation. When they increase its rate, it will move other interest rates through financial agencies' activity. Higher interest rate can prevent firms to borrow more, thus the economy might become sluggish.

As for your remarks about banking rate, there are two things to mention. Firstly, interest rate depends on its duration. Usually longer the duration, higher the interest rate. The policy rate is usually a very short one, so it might be natural that the policy rate and bank rate differs. Second, the policy rate can be to some extent thought as a risk-free rate while banking rate might include risk premium of that bank. This is why the bank rate is higher than policy rate.

> **Comments:**
> **username_0**: means that they are trying to suppress the economic activity in order to avoid high inflation  If you suppress economic activity you may also suppress (and actually you do) goods production.  do:     1) Hight inflation     2) Hight rates     3) Less economic activity     4) Lower goods production repeat until economy is not dead  
> **username_5**: The CB **is not trying to suppress economic activity**. Interest are in the low side of the cycle. Look [here](http://www.global-rates.com/interest-rates/central-banks/central-bank-russia/cbr-interest-rate.aspx).  
> **username_0**: is not trying to suppress economic activity  Tell this to previous commenter  

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