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Visualizing Interest Rates by Country in 2021

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Interest Rates by Country

Interest Rates by Country

Visualizing Interest Rates by Country in 2021

Going as far back as the 14th century, pandemics have been found to have a negative effect on interest rates.

History shows that this effect is even greater than that of financial crises. Across a study of 19 pandemics since the mid-1300s, real interest rates fell an average of 1.5 percentage points lower in the following two decades than they would have otherwise. And yet, even before COVID-19, structural forces, such as rising debt, were causing interest rates to fall.

The above Markets in a Minute chart from New York Life Investments shows interest rates by country in 2021.

How Have Interest Rates Changed?

Broadly speaking, the majority of countries’ short-term interest rates have declined since COVID-19 began. Using data from CEIC as of April 2021, short-term interest rates are measured by three-month money market rates where available.

Interest rate change Apr 2020 – Mar 2021

  • Interest rates fell: 69 countries
  • Interest rates increased: 10 countries
  • Interest rates stayed the same: 3 countries

Across nearly every continent, interest rates have decreased as central banks enacted measures to combat the economic fallout of COVID-19.

Country/ RegionShort-Term Interest Rate Mar 2021 (%)*Short-Term Interest Rate Apr 2020 (%)**Interest Rate Change 2020-2021 (%)
Argentina3112.418.6
Australia0.00.1-0.1
Austria-0.5-0.3-0.2
Bangladesh0.77.1-6.4
Belarus13.910.63.3
Belgium-0.5-0.3-0.2
Bolivia11.58.62.9
Botswana3.54.4-0.9
Cambodia1.81.60.2
Canada0.10.3-0.2
China2.61.41.2
Colombia1.84.6-2.8
Costa Rica3.64.1-0.5
Cyprus-0.5-0.3-0.2
Czech Republic0.40.9-0.5
Denmark-0.2-0.40.2
Ecuador1.01.3-0.3
Egypt9.99.60.3
Estonia-0.5-0.3-0.2
Finland-0.5-0.3-0.2
France-0.5-0.3-0.2
Georgia8.09.0-1.0
Germany-0.5-0.3-0.2
Greece-0.5-0.3-0.2
Hong Kong0.21.7-1.5
Hungary0.81.1-0.3
Iceland1.42.4-1.0
India3.75.3-1.6
Indonesia3.84.9-1.1
Ireland-0.5-0.3-0.2
Israel-0.10.1-0.2
Italy-0.5-0.3-0.2
Japan-0.10.1-0.2
Jordan4.64.7-0.1
Kenya6.97.2-0.3
Kosovo-0.5-0.3-0.2
Kuwait1.51.8-0.3
Latvia-0.5-0.3-0.2
Lithuania-0.5-0.3-0.2
Luxembourg-0.5-0.3-0.2
Macau SAR0.31.7-1.4
Malaysia1.92.8-0.9
Malta-0.5-0.3-0.2
Mauritius0.11.2-1.1
Mexico4.26.2-2.0
Moldova7.08.0-1.0
Montenegro-0.5-0.3-0.2
Morocco1.52.0-0.5
Mozambique13.310.03.3
Nepal1.12.1-1.0
Netherlands-0.5-0.3-0.2
New Zealand0.30.30.0
Nigeria6.910.1-3.2
Norway0.41.4-1.0
Pakistan7.68.2-0.6
Panama0.20.7-0.5
Philippines1.23.2-2.0
Poland0.20.7-0.5
Portugal-0.5-0.3-0.2
Qatar1.11.10.0
Romania1.72.5-0.8
Russia4.76.7-2.0
Saudi Arabia0.81.2-0.4
Serbia0.91.2-0.3
Singapore0.40.9-0.5
Slovakia-0.5-0.3-0.2
Slovenia-0.5-0.3-0.2
South Africa3.84.2-0.4
South Korea0.81.0-0.2
Spain-0.5-0.3-0.2
Sweden-0.20.3-0.5
Switzerland-0.8-0.7-0.1
Taiwan0.50.50.0
Thailand0.60.9-0.3
Turkey208.411.6
UAE0.31.9-1.6
United Kingdom0.10.6-0.5
United States0.00.1-0.1
Uruguay5.010.1-5.1
Venezuela73.823.550.3
Vietnam1.74.2-2.5
Zambia14.016.5-2.5

Source: CEIC (Apr, 2021)
*Bolivia, Botswana, Costa Rica, Japan, Mauritius, Nepal, Qatar, Russia, Slovakia, Zambia have most recent data as of Feb ’21
**Costa Rica, Denmark, Mauritius, Norway & Russia have 2020 data as of Mar 2020

In the U.S., interest rates fell to record lows, dropping by 0.1 percentage points between April 2020 and March 2021. As vaccine rollouts accelerated in 2021, real GDP grew by an annual rate of 6.4% in the first quarter. Unemployment slightly improved to 6.1%, but still remains well above pre-pandemic levels of 3.5%.

Given these variables, the question of whether interest rates will rise is an open one.

Like the U.S., interest rates in the European Union declined, although at a greater rate—from -0.3% to -0.5%. To help improve economic conditions, the European Central Bank promises to purchase $2.2 trillion in government bonds until March 2022.

Together, the euro area, the U.S., Japan, and Britain have produced at least $3.8 trillion in new money supply since early 2020.

Interest Rates: The Steepest Gains and Declines

As money creation and low interest rates have become increasingly common phenomena, the focus has shifted to inflation.

With interest rates reaching 343% in 2020, Venezuela has been a poster child for hyperinflationary forces. Energy shortages only compounded the effect which was well underway before the pandemic. Between April 2020 and March 2021, interest rates jumped over 50 percentage points.

In addition, Turkey and Brazil raised interest rates in March 2021 to dampen inflation. Interest rates in Turkey have increased 11.6 percentage points over the time frame, one of the highest absolute changes globally.

In 2020, the lira faced historic declines, causing the price of imports to climb significantly.

Interest Rates by Country

On the other hand, Bangladesh has seen its interest rates decline 6.4 percentage points, the steepest drop across the dataset. To help offset the effects of COVID-19, the Bangladesh Bank lowered interest rates from 7.1% to 0.7%.

With rates falling 3.2 percentage points, Nigeria has also seen one of the greatest interest rate drops. In March, Fitch Ratings gave the country a B rating with a stable outlook, supported by its low government debt-to-GDP ratio and large economy.

Research has found that countries with better credit ratings and transparent fiscal infrastructure had greater ability for central banks to lower interest rates in response to the crisis.

Sign of the Times

Policy rate changes, a key central bank maneuver, have been an important tool in response to COVID-19.

As economic activity in some countries picks up, interest rates could rise. However, progress in vaccination distribution remains uncertain, especially in emerging markets.

In tandem with this, global central banks are applying unproven monetary policy frameworks, including money creation and large-scale bond purchases. While studies show that interest rates have been falling over the past several centuries, the confluence of these factors will be revealing in the years that follow.

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Markets in a Minute

Visualizing the History of U.S. Inflation Over 100 Years

Is inflation getting higher? In this infographic we explore how inflation rates have evolved over the last century, putting current numbers into context.

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Inflation

This infographic is available as a poster.

Visualizing the History of U.S. Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate since 2015. By comparison, inflation sits around 2.5% as of June 2021.

For context, recent numbers are just above rates seen in 2019, which were 2.3%. Given how the economic shock of COVID-19 depressed prices, rising price levels make sense. However, other variables, such as a growing money supply and rising raw materials costs, could factor into rising inflation.

To show current price levels in context, this Markets in a Minute chart from New York Life Investments shows the history of inflation over 100 years.

U.S. Inflation: Early History

Between the founding of the U.S. in 1776 to the year 1914, one thing was for sure—wartime periods were met with high inflation.

At the time, the U.S. operated under a classical Gold Standard regime, with the dollar’s value tied to gold. During the Civil War and World War I, the U.S. went off the Gold Standard in order to print money and finance the war. When this occurred, it triggered inflationary episodes, with prices rising upwards of 20% in 1918.

YearInflation Rate*
19141.0%
19152.0%
191612.6%
191718.1%
191820.4%
191914.6%
19202.7%
1921-10.8%
1922-2.3%
19232.4%
19240%
19253.5%
1926-1.1%
1927-2.3%
1928-1.2%
19290.6%
1930-6.4%
1931-9.3%
1932-10.3%
19330.8%
19341.5%
19353.0%
19361.5%
19372.9%
1938-2.8%
19390.0%
19400.7%
19419.9%
19429.0%
19433.0%
19442.3%
19452.3%
194618.1%
19478.8%
19483.0%
1949-2.1%
19505.9%
19516.0%
19520.8%
19530.8%
1954-0.7%
19550.4%
19563.0%
19572.9%
19581.8%
19591.7%
19601.4%
19610.7%
19621.3%
19631.6%
19641.0%
19651.9%
19663.5%
19673.0%
19684.7%
19696.2%
19705.6%
19713.3%
19723.4%
19738.7%
197412.3%
19756.9%
19764.9%
19776.7%
19789.0%
197913.3%
198012.5%
19818.9%
19823.8%
19833.8%
19844.0%
19853.8%
19861.1%
19874.4%
19884.4%
19894.7%
19906.1%
19913.1%
19922.9%
19932.8%
19942.7%
19952.5%
19963.3%
19971.7%
19981.6%
19992.7%
20003.4%
20011.6%
20022.4%
20031.9%
20043.3%
20053.4%
20062.5%
20074.1%
20080.1%
20092.7%
20101.5%
20113.0%
20121.7%
20131.5%
20140.8%
20150.7%
20162.1%
20172.1%
20181.9%
20192.3%
20201.4%
20212.5%

Source: Macrotrends (June, 2021)
*As measured by the Consumer Price Index (CPI)

However, when the government returned to a modified Gold Standard, deflationary periods followed, leading prices to effectively stabilize, on average, leading up to World War II.

The Move to Bretton Woods

Like post-World War I, the Great Depression of the 1930s coincided with deflationary pressures on prices. Due to the rigidity of the monetary system at the time, countries had difficulty increasing money supply to help boost their economy. Many countries exited the Gold Standard during this time, and by 1933 the U.S. abandoned it completely.

A decade later, with the Bretton Woods Agreement in 1944, global currency exchange values pegged to the dollar, while the dollar was pegged to gold. The U.S. held the majority of gold reserves, and the global reserve currency transitioned from the sterling pound to the dollar.

1970’s Regime Change

By 1971, the ability for gold to cover the supply of U.S. dollars in circulation became an increasing concern.

Leading up to this point, a surplus of money supply was created due to military expenses, foreign aid, and others. In response, President Richard Nixon abandoned the Bretton Woods Agreement in 1971 for a floating exchange, known as the “Nixon shock”. Under a floating exchange regime, rates fluctuate based on supply and demand relative to other currencies.

A few years later, oil shocks of 1973 and 1974 led inflation to soar past 12%. By 1979, inflation surged in excess of 13%.

The Volcker Era

In 1979, Federal Reserve Chair Paul Volcker was sworn in, and he introduced stark changes to combat inflation that differed from previous regimes.

Instead of managing inflation through interest rates, which the Federal Reserve had done previously, inflation would be managed through controlling the money supply. If the money supply was limited, this would cause interest rates to increase.

While interest rates jumped to 20% in 1980, by 1983 inflation dropped below 4% as the economy recovered from the recession of 1982, and oil prices rose more moderately. Over the last four decades, inflation levels have remained relatively stable since the measures of the Volcker era were put in place.

Fluctuating Prices Over History

Throughout U.S. history. there have been periods of high inflation.

As the chart below illustrates, at least four distinct periods of high inflation have emerged between 1800 and 2010. The GDP deflator measurement shown accounts for the price change of all of an economy’s goods and services, as opposed to the CPI index which is a fixed basket of goods.

It is measured as GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100.
Inflation using GDP Price Deflator

According to this measure, inflation hit its highest levels in the 1910s, averaging nearly 8% annually over the decade. Between 1914 and 1918 money supply doubled to finance war efforts, compared to a 25% increase in GDP during this period.

U.S. Inflation: Present Day

As the U.S. economy reopens, consumer demand has strengthened.

Meanwhile, supply bottlenecks, from semiconductor chips to lumber, are causing strains on automotive and tech industries. While this points towards increasing inflation, some suggest that it may be temporary, as prices were depressed in 2020.

At the same time, the Federal Reserve is following an “average inflation targeting” regime, which means that if a previous inflation shortfall occurred in the previous year, it would allow for higher inflationary periods to make up for them. As the last decade has been characterized by low inflation and low interest rates, any prolonged period of inflation will likely have pronounced effects on investors and financial markets.

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Markets in a Minute

How Rising Treasury Yields Impact Your Portfolio

Treasury yields have climbed to pre-pandemic levels. Here’s why they are important, and which investments may go up or down as yields rise.

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Treasury Yields

This infographic is available as a poster.

How Rising Treasury Yields Impact Your Portfolio

Since the start of 2021, the yield on the U.S. 10-year Treasury note has climbed to pre-pandemic levels. But what exactly does this mean, and how could it impact your portfolio?

In this Markets in a Minute from New York Life Investments, we explain why Treasury yields are important and which investments may go up or down when yields are rising.

What are Treasury Yields?

Treasury yields are the total amount of money you earn from U.S. debt securities, such as bonds and T-bills. Yields depend on both the security’s price, relative to its face value, and its “coupon” or interest payment.

The 10-year yield is important because it is closely-watched indication of market sentiment. Here’s what leads to changing Treasury yields:

  1. When investors expect the market to drop, they look for safer investments.
  2. Due to higher bond demand, prices rise.
  3. This lowers their yield, as bonds become more expensive than they were before.

The opposite occurs when the market is bullish.

  1. When investors expect the market to rise, they look for riskier investments.
  2. Due to less bond demand, prices drop.
  3. This raises their yield, as bonds become more cost effective.
    1. Currently, Treasury yields are in the latter scenario because investors are confident in a sustained recovery as vaccines are rolled out and the economy reopens.

      Investments That May Go Up During Rising Yields

      Rising yields can have a number of knock-on effects in the market. Here are the investments that could increase in value when yields are going up.

      InvestmentWhy could returns potentially increase?
      U.S. dollarRising yields attract income-seeking investors, who must purchase U.S. debt in U.S. dollars
      Savings accountsIf the economy is growing at a rate that may lead to hyperinflation, the central bank may raise interest rates 
      REITsWhile rising rates pose challenges, economic growth typically translates into a higher level of real estate demand
      Cyclical stocksStocks that move with the economy, like banks, tend to do well during economic recoveries

      Cyclical stocks, such as banks, travel, and energy, may all benefit from an economic recovery. This is particularly true for banks if the economy is growing at a rate that exceeds inflation targets, as the central bank may raise interest rates. In turn, this allows banks to earn a higher profit margin because they can charge a higher rate on their loans.

      While it is commonly said that real estate investment trusts (REITs) underperform during rising interest rates, the data tells a different story. In four of six periods of sustained rising yields, REITs earned positive returns—and they outperformed stocks in half of them.

      REIT Performance During Rising Treasury Yields

      Source: S&P Dow Jones Indices

      Rising rates do pose challenges, including higher borrowing costs and lower property values.

      However, it’s evident that rising rates also have a positive influence on REITs. For instance, rising rates are typically associated with economic growth, which translates to higher real estate demand and higher occupancy rates. This means REITs can see increased earnings and dividends.

      Investments That May Go Down During Rising Yields

      On the flip side, there are some investments that could decrease in value when yields climb.

      InvestmentWhy could returns potentially decrease?
      BondsTo remain competitive, newly issued bonds offer higher interest rates—making existing bonds less attractive
      Dividend-paying stocksRising rates give an edge to newly issued bonds, creating a historically safer alternative for income-seeking investors
      GoldAs a safe haven asset, gold is less desirable during market optimism
      Some growth stocksRising interest rates make borrowing more expensive, which may slow company growth

      Existing bonds will likely see declining performance, with higher volatility among long-term government and corporate bonds. Short-term bonds typically see smaller drops. This is because they have less interest rate risk: there’s a smaller probability that interest rates will rise before a short-term bond’s maturity, and they have fewer interest payments that could be affected by rising rates.

      Growth stocks, such as those in the technology sector, may also see weaker performance. In fact, value stocks have been outperforming growth stocks since the fourth quarter of 2020, a significant shift from growth’s strong historical performance in recent years.

      U.S. Treasury Yields: One Part of the Picture

      In addition to being a barometer for investor confidence, Treasury yields can have an important impact on your portfolio.

      However, investment performance can vary depending on a number of other economic factors such as inflation and interest rate levels. For example, climbing inflation could lead to higher gold prices, since gold is seen as an inflationary hedge. You may want to consider the full economic picture when you are reviewing your portfolio.

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