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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

Author

Listed:
  • Peter Brusov

    (Department of Data Analysis, Decision Making, and Financial Technology, Financial University Under the Government of Russian Federation, Moscow, Russia)

  • Tatiana Filatova
  • Natali Orekhova
  • Veniamin Kulik
  • Irwin Weil
  • Andrey Brailov

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 ß 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 ß 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.

Suggested Citation

  • Peter Brusov & Tatiana Filatova & Natali Orekhova & Veniamin Kulik & Irwin Weil & Andrey Brailov, 2018. "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," Journal of Reviews on Global Economics, Lifescience Global, vol. 7, pages 360-376.
    • Handle: RePEc:lif:jrgelg:v:7:y:2018:p:360-376
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    Cited by:

    1. Nikita Singhal & Shikha Goyal & Divya Sharma & Sapna Kumari & Shweta Nagar, 2022. "Capitalization and profitability: applicability of capital theories in BRICS banking sector," Future Business Journal, Springer, vol. 8(1), pages 1-13, December.
    2. Trina Saha & Rubel Miah & Mahfujur Rahman & Sumon Kumar Das & Emranul Hoque, 2023. "Disclosures for slavery accounting concerning SDG 8 and corporate attributes: a study on the banking industry of Bangladesh," Future Business Journal, Springer, vol. 9(1), pages 1-11, December.
    3. Hani El-Chaarani & Rebecca Abraham & Yahya Skaf, 2022. "The Impact of Corporate Governance on the Financial Performance of the Banking Sector in the MENA (Middle Eastern and North African) Region: An Immunity Test of Banks for COVID-19," JRFM, MDPI, vol. 15(2), pages 1-21, February.

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