What is the ECB – REFI rate?
Last Thursday, the media have informed the decision of the European Central Bank to leave rates unchanged at 0.25% REFI , however, they were taken for granted by the markets.
We take this opportunity to explain what it is: REFI is not an acronym, but an abbreviation of the English term refinancing rate and could be translated to the refinancing rate or repurchase agreements. In English we speak of ECB refi rate. In practice, it is the value (index) that banks must pay when they take the money borrowed from the ECB, for example, during periods when liquidity is scarce. From the REFI rate then depends on the interbank interest rates such as the Euribor and other market rates: loans to businesses and consumer loans, mortgages and interest rates on deposit accounts. To put it in very simple terms, this “purchase price of money” set by the ECB is the factor that determines what interest rates will be applied to pay in cash.
From 2009 to today the REFI rate of the ECB has seen a sharp downward trend ( with a brief period of increases in 2011) , going from 1 , 50 % in March 2009 to 0.25 % set last November and now maintained.