The real interest rate in Russia
Importance The article overviews rates of return on time deposits and governmental securities, examining the real interest rate on these instruments in Russia of the 21 st century. Objectives The research aims at examining the effect of inflation, borrowers’ interest rate policies, concentration of the time deposit segment and governmentalization of major banks on the real interest rate. Methods Using the quantitative analysis of official statitistical data and results of 450 auctions for placing government securities, I determine the real interest rate on time deposits and government securities. I carry out the quantitative analysis of the information. Results The real interest rate in Russia is permanently negative, i.e. it is an illegitimazed tax. It is applicable to banks that attract public funds in the form of time deposits. Afterwards through the government securities market, it is allocated in the favor of the State. Selling its securities with negative real return to banks, the government partially collects the tax, thus comepsating for reduced purchasing power of its budget due to inflation. Conclusions and Relevance Russia demonstrates all conditions making the real interest rate negative, i.e. moderate inflation, high percentage of population who are financially captured by the State and have to hold their savings with state-owned banks, high concentration of the banking sector and its oligopolistic structure, high extent of governmentalization of the largest banks, explicit or implicit capping of deposit rates and government securities yield. The conclusions illustrate the need to liberalize the market of retail deposits, improve public awareness and knowledge of personal financial management. If financial repressions are alleviated (this is the term used in academic literature, i.e. negative interest rate, it will attract more people to banks, thus increasing financial flows to the Russian economy.