Historical Interest Rates

Historical interest rates, both high and low, have been the result of weak economic policies over the years. The lack of political motivation and sensitive consumer behavior have also contributed towards volatility in interest rate.

Historical interest rates, both high and low, have been the result of weak economic policies over the years. The lack of political motivation and sensitive consumer behavior have also contributed towards volatility in interest rate.

Historical Interest Rates: United States

Following civil war in the mid-19th century, rampant economic development paved the way for the US industrial revolution. By the end of the century, the US overtook European nations as the world’s most powerful economy. Proactive steps were taken to enhance investment in businesses and industries, and the prime lending rates were kept as low as 1% until the 1940s. The period from 1950 to 1970 saw prime interest rates skyrocket from 2% to 6.75%.

 

In the late 1970s, stagflation hampered economic growth, bringing it down to unprecedented levels. The prime rate peaked to 21.50% in December 1980, despite proactive reforms by the then President Ronald Regan. The following years saw a gradual decline in interest rates and the Fed lending rate settled at 8.25% in June 2006. However, the recession of 2007-2008 forced the Federal Reserve Bank to drop lending rates to 3.25%.

 

Historical Interest Rate: Brazil

Brazil offers exemplary data to exhibit the impact of interest rates on an economy. Post 1970, unfavorable economic policies resulted in the Brazilian economy suffering from high inflation and stagnation. This drove the government to pay high interest rates in order to persuade the public to buy government debt instruments. The following decades saw the Brazilin economy reeling under heavy public debt, caused by the turbulent political scenario in the nation.

Since early 2000, Brazil has emerged as a nation with the highest lending rates. According to official data from a January 2005 study, every Brazilian pays a monthly interest rate of 8.31% or 160.63% per annum. The government exaggerates Selic rates (another term for prime rates in Brazil) to curb inflation and prevent further devaluation of the Brazilian currency. In February 2009, the Selic rates for short-term loans were 12.75%, whereas banks lent money at rates as high as 43.2%.

 

Historical Interest Rates: Japan

The country has been facing recession since the 1990s, causing the Bank of Japan to deflate prime rates from approximately 6% in 1990 to just above 1% in early 2000s. In order to revive its economy, Japan reduced its interest rates further to around 0% in March 2001. This zero interest rate policy was aimed at facilitating lending, thereby fostering both production and consumption. However, with the strengthening of the economy, the Bank of Japan has proposed to a shift in its interest rates to a level comparable to that across the world. However, this proposal is facing resistance from Japanese ministers who are concerned about the impact of the hike on the country’s economic recovery, given the recessionary pressures across the globe.