The impact of the central bank key rate and commercial banks credit rates on creating and maintaining of a favorable investment climate in the country

Peter Brusov*, Tatiana Filatova, Natali Orekhova, Veniamin Kulik, Irwin Weil, Andrey Brailov

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Paper is devoted to study of the impact of the Central Bank key rate and commercial banks credit rates on creating and maintaining of a favorable investment climate in the country. Within the framework of modern investment models created by the authors, the dependence of the efficiency of investments on the level of debt financing within a wide range of values of equity costs and debt capital costs under different project terms (long -term projects as well as projects of arbitrary duration) and different investment profitability coefficients β is investigated. The effectiveness of investments is determined by Net Present Value, NPV. The study is conducted within the framework of investment models with debt repayment at the end of the project term. It is found that NPV depends practically linearly on leverage level L, increasing or decreasing depending on profitability coefficient β and credit rate values kd. The cut off credit rate values kd *, separating the range of increasing NPV(L) from range of decreasing NPV(L), are determined. The Central Bank should keep its key rate at the level which allow commercial banks keep their credit rates below the cut off credit rate kd * values in order to create and maintain a favorable investment climate in the country.

Original languageEnglish (US)
Pages (from-to)360-376
Number of pages17
JournalJournal of Reviews on Global Economics
Volume7
Issue numberSpecial Issue
DOIs
StatePublished - 2018

Keywords

  • A favorable investment climate
  • Central Bank
  • Commercial banks
  • Credit rate
  • Key rate
  • Profitability coefficient

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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