This infographic is available as a poster.

Mapped: Interest Rates by Country

Soaring inflation, the war in Ukraine, and strengthening economies are spurring interest rate increases around the world. At the same time, central banks are unwinding record monetary stimulus from COVID-19.

In this Markets in a Minute from New York Life Investments, we show interest rates by country in 2022. Interest rates are based on short-term benchmark policy rates set out by central banks.

Interest Rates Around the World in 2022

While the vast majority of countries saw a decline in interest rates over recent years, this trend is reversing for many in 2022.

After hovering at 0.0%, the U.S. increased its short-term interest rate to 0.5%. Experts project up to seven interest rate hikes this year, with interest rates rising as high as 1.9% by year-end.

For many countries in Europe, interest rates climbed out of negative territory for the first time since 2014. Interest rates now sit at 0.0% across the European Union.

*Australia, China, India, Pakistan, Peru, Poland, Serbia, Romania data as of April 2022.
Reflects data for March or February 2022 depending on latest available data.
Source: Trading Economics (Apr 2022)

In Latin America, several central banks are taking a hawkish stance as oil price shocks are causing inflation to accelerate.

Mexico raised its benchmark interest rate to 6.5% in March in response to inflation hitting 20-year highs. Even before the war in Ukraine, global factors such as rising oil and import prices were already having a greater impact on Latin American countries than advanced economies.

Unlike the U.S. and most countries located in Europe and Latin America, China is anticipated to potentially lower its interest rates.

A renewed COVID-19 wave has slowed growth, with the government requiring countless factories to close in order to combat the spread of the Omicron variant. Disruptions have cascaded across supply chains—from electric vehicles to iPhones— leaving goods in shorter supply. China is responsible for roughly one-third of global manufacturing.

High-Water Mark

Which countries have the highest interest rates in 2022?

At an eye-watering 80%, Zimbabwe has the highest interest rate of any country.

In early April, the central bank raised rates by 20 percentage points to combat a 73% inflation rate. Small businesses, teachers, and analysts have been urging the government to adopt the U.S. dollar to boost economic and investor confidence amid currency woes.

With an interest rate of 44.5%, Argentina has the second-highest rate. To get closer to reaching the requirements for rescheduling its $40 billion loan to the International Monetary Fund (IMF), the central bank raised interest rates for the second time this year. The IMF requires having interest rates above the rate of inflation. As of February, Argentina’s inflation exceeded 50%.

Meanwhile, oil-rich countries such as Angola (20%), Iran (18%), and Russia (17%) all made it into the top 10 for highest rates globally.

Treading Water

What is the outlook for interest rates in 2022 and beyond?

In the short term, experts believe interest rates will likely rise to fight inflation. They could also play a role in slower economic growth, especially if raised too quickly. Recently, the World Bank revised global growth to 3.2% due to the war in Ukraine and rising food and energy prices—about a percentage point lower than its previous forecast of 4.1%.

The longer-term view may look different.

Structural factors, such as an aging population, will likely lead to an increase in savings rates for retirement. In theory, higher savings rates increases the total supply of funds, depressing the interest rate. By 2100, people over 50 are projected to rise from 25% to 40% of the global population.

The end of ultra-low interest rates may be over for now, but broader factors, including growing global debt—which stands at 355% of the world’s GDP—suggests it may be a short to medium-term adjustment.

This infographic is available as a poster.

Chart: Money Supply and Inflation Over 150 Years

How closely are money supply and inflation related?

This Markets in a Minute from New York Life Investments shows the trajectory of money supply and inflation, taking a historical look at their relationship since the Industrial Revolution.

Defining Money Supply and Inflation

To start, here is a brief overview of money supply and inflation:

• Broad money supply: measures the amount of money circulating in the U.S. financial system, including assets that can be converted into cash.
• Inflation: measured by the consumer price index (CPI), inflation is the average level of prices in the U.S. based on a basket of goods and services over a given time period.

When more capital is injected into the economy, it can cause consumer demand to grow. Assuming a similar amount of goods and services available, consumers are willing to pay more–which leads to rising prices.

Money Supply and Inflation Over History

Here are the key periods where money supply per capita was the highest in recent history.

Five-year rolling periods were used to eliminate the noise found in one-year periods. As a result, this shows consistent periods of monetary growth, and explains why the recent inflation spike isn’t as pronounced.

As seen in the table below, there were five periods where broad money per capita growth exceeded 50%.

*Rolling 5-year cumulative growth
Source: Lyn Alden, macrohistory.net, St. Louis Fed, Òscar Jordà, Moritz Schularick, and Alan M. Taylor. 2017. “Macrofinancial History and the New Business Cycle Facts.” in NBER Macroeconomics Annual 2016, volume 31, edited by Martin Eichenbaum and Jonathan A. Parker. Chicago: University of Chicago Press. (Mar 2022)

During WWII, the money supply doubled to finance war efforts. Inflation was high during and after this time, particularly in 1946-47, but returned to stability in 1949.

Amid soaring government deficits in the 1970s, inflation climbed upwards. In response the U.S. abandoned the monetary system established in WWII, decoupling from the gold standard, adopting the one we use today.

Today, while money supply per capita has grown 56%, inflation has increased, albeit at a muted rate compared to other periods. In addition, it’s been just two years since the money supply grew at such rapid rates. How inflation will play out in the future remains to be seen.

Two Historical Exceptions

There are two exceptions where inflation didn’t rise as sharply when the money supply increased.

Between 1875 and 1910, the U.S. emerged as a superpower. During this time, several technological innovations took place including the lightbulb, electrification, and the internal combustion engine. With the Spindletop oilfield advancements in 1901, more oil was produced there in one day than in all global oil fields combined.

As a result, this created real growth and vast improvements in productivity rather than inflation.

The second time period is from the 1990s onwards, with the advent of the internet. As computing power and automation improved, it led to productivity gains and deflationary pressures. As seen in the employment cost index, wage growth decreased amid globalization. Despite influxes of money supply, inflation remained low for decades.

What’s Next?

The war in Ukraine has led everything from nickel to wheat and food staples to rise in price. Supply chain disruptions are also fueling higher inflation. Whether or not today’s inflation echoes the price shocks of the 1970s or supply shock of the 1940s (or both) is an open question.

At the same time, the Fed ended its net purchases of Treasuries and mortgage-backed securities in March amid elevated inflation. These emergency measures were used to support the economy during COVID-19. Overall, they totaled $4.6 trillion and the Federal Reserve’s balance sheet doubled over two years.

Going forward, the Fed plans to significantly reduce its balance sheet and raise interest rates. Economists predict inflation will continue to rise in 2022, but long-term forecasts suggest they may fall near the Federal Reserve’s 2% goal.