How the Key Interest Rate Affects Business
The key interest rate impacts several important indicators for businesses:
- Loan Rates
- Deposit and Savings Account Rates
- Return on Investment Instruments
- Ruble Exchange Rate
Loan Rates. When the key interest rate rises, borrowing money from banks becomes more expensive, and vice versa. For example, in the second quarter of 2023, when the rate was still relatively low, businesses were issued loans at an average of 9.5%, while in the same period of 2024, the rate rose to 15.9%.
Deposit and Savings Account Rates. The interest on these instruments also moves in the same direction as the key interest rate. For instance, following the Central Bank’s latest decision on September 16, T-Bank raised deposit rates for businesses, with the maximum yield reaching 16.65% for a one-year investment. Additionally, for companies with an annual turnover of over 120 million, the bank is ready to offer personalized conditions.
Return on Investment Instruments. As the rate increases, the yield on bonds—securities through which the government and businesses borrow money from investors—also rises. Furthermore, money market instruments become more attractive, where banks and other financial organizations lend money to each other.
Ruble Exchange Rate. The dynamics of the key interest rate indirectly affect it. An increase in the rate contributes to the strengthening of the ruble: businesses and individuals sell foreign currency to invest in ruble-denominated assets. Additionally, as the rate rises, demand for imports decreases, which in turn reduces demand for foreign currency, causing the ruble to appreciate. Conversely, when the rate decreases, all economic participants become more interested in foreign currency, leading to a depreciation of the ruble.
The key interest rate can also significantly influence a company’s performance. Here are the primary changes:
- Sales. When the rate increases, entrepreneurs are forced to reduce business activity, and their employees earn less. Moreover, during this time, people prefer to save their money to earn high interest rather than spending it on purchases. All of this negatively impacts the sales levels of most companies. In contrast, when the Central Bank lowers the rate, consumer sentiment improves, and people tend to buy more goods and services.
- Business Growth. When the rate rises, the most convenient way to finance a business—bank loans—becomes less accessible, leading to a decrease in available funds. Entrepreneurs are forced to forgo investments in new projects, scaling, and business modernization. Additionally, like regular citizens, many entrepreneurs prefer to deposit their money in a bank. When the key interest rate decreases, businesses have more resources to expand.
This trend is usually further stimulated by positive economic forecasts: businesses believe that investments in development will yield greater returns than bank deposits.