DUSHANBE, July 7, 2008, Asia-Plus — Tajik central bank has changed refinancing rate for the second time this year.
According to the National Bank of Tajikistan (NBT), the central bank changed refinancing rate on July 3, cutting it from 14.75 percent on April 2, 2008 to 14 percent.
As it had been reported earlier, the NBT changed refinancing rate for the first time on April 2, cutting it from 16 percent on February 8 to 14.75.
An average interest rate of Tajik banking system for January 2008 stood at 15 percent, while the average annual interest rate for 2007 stood at 12.95 percent.
The highest refinancing rate was reported for October 6-12, 2003 – 18.06 percent and the lowest one was reported on December 1-12, 2003 – 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.
