DUSHANBE, July 3, 2009, Asia-Plus — The National bank of Tajikistan (NBT) has changed the refinancing rate for the fourth time this year.
The NBT recently lowered the refinancing rate from 9% to 8%. It is already the fourth decrease in the refinancing rate this year. It is the lowest refinancing rate over the past five year.
As it had been reported earlier, the refinancing rate was lowered from 10% on May 12 to 9% in late June. Before that, the refinancing rate was lowered from 13.5% to 12% on January 28 and to 10 percent on May 12.
Last year, the central bank changed the refinancing rate three times. On April, the bank cut it from 16 percent on February 8 to 14.75. On July 3, the refinancing rate was reduced from 14.75 percent to 14 percent and on November 19, it was reduced to 13.5 percent.
The highest refinancing rate was reported for October 6-12, 2003 – 18.06 percent and the refinancing rate for December 1-12, 2003 was 8.22 percent.
Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage. Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to extend the repayment time, to pay off other debts, to reduce one”s periodic payment obligations (sometimes by taking a longer-term loan), to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to raise cash for investment, consumption, or the payment of a dividend.
In essence, refinancing can alter the monthly payments owed on the loan either by changing the loan”s interest rate, or by altering the term to maturity of the loan. More favorable lending conditions may reduce overall borrowing costs. Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans.
