October 13, 2010Interest Ratesby EconomyWatch

World Interest Rate

The central bank of a country sets the benchmark interest rate based on several key factors, such as the region’s economic situation, inflation and political stability. Since these factors differ across the globe, world interest rates vary drastically and play a key role in determining how lucrative investing in a specific country is.

World Interest Rate: The Effect of Globalization

The era of globalization has drastically altered the concept of ‘trade,’ making even the most powerful economies rely on other economies for industrial development. Due to this trend, the economic situation in one country has a cascading effect on other economies and the interest rates applicable in those regions. For example, most economies across the globe depend on the OPEC (Organization of Petroleum-Exporting Countries) nations for oil supplies. Hence, when the savings rate in the OPEC region fell drastically in the early 1980s, the savings rate in the non-OPEC countries also declined sharply.


World Interest Rate: OECD Nations

With OECD (Organization for Economic Cooperation and Development) accounting for about three-quarters of the world’s investment, economic soundness in these nations impact the interest rate trends throughout the world.

In the 1960s, the real interest rates in the OECD nations were between 0.8% and 4.5%, while those in Ireland and Iceland were negative. The rates worsened in 1970s, when real interest rates fell and slipped into negative across most of the OECD countries due to rising inflation. In the 1980s, the situation improved considerably, with real interest rates ranging between 4% and 6% in several OECD nations. The real interest rates continued to strengthen over the next decade and in early 2000, since the economy in this region continued to inflate.

After the financial meltdown for 2008, interest rates fell steeply to a corrective level. After reaching 5.4% in 2003 and touching 6% in 2007, long term interest rates in Australia slipped back to 5.8% in 2008. Similarly, interest rates in the US slumped to 3.7% in 2008 from 4.8% in 2006. Other OECD nations also witnessed a visible decline in interest rates in 2008. The interest rates in OECD countries in 2009 have generally been between 0% and 1%.


World Interest Rates: Non-OECD Nations

The last few decades of the 20th century saw the emergence of several developing economies, such as Brazil, Singapore, India and China. Proactive policies and sustained growth in these economies lead to stable economic growth. Brazil maintained its interest rates between 17% and 20% from 2006 to 2008. China’s interest rate ranged between 2.79% and 4.14% during the same period. India also maintained an average annual interest rate of 6%.

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