15 Countries with Lowest Interest Rates

Published on November 22, 2022 at 1:20 pm by Insider Monkey Team in Lists, News

In this article, we will take a look at 15 countries with the lowest interest rates.

Interest rates are important for economic growth.

Interest rates are how central banks like the Federal Reserve manage a country’s economic growth. In recessionary times, the Federal Reserve can lower interest rates and help boost demand to produce more economic growth. With lower interest rates, more people could potentially obtain a mortgage for a home and businesses could potentially borrow more funds to expand.

In expansionary times, the Federal Reserve can increase interest rates and reduce demand to prevent the economy from growing too quickly. With higher interest rates, borrowing by consumers and business is more restrained.

Adjusting interest rates also help central banks like the Federal Reserve control inflation. In times of high inflation, the Federal Reserve increases interest rates to decrease demand to potentially reduce inflation. In times of low inflation, the Federal Reserve may sometimes lower interest rates to try to prevent deflation.

In terms of the United States, the nation’s interest rate refers to the federal funds rate, which according to the Federal Reserve Bank of St. Louis is, “The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight… The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target.(2) The Federal Open Market Committee (FOMC) meets eight times a year to determine the federal funds target rate.”

The Federal Reserve further elaborates on the federal funds rate, “The federal funds rate is the central interest rate in the U.S. financial market. It influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings. Additionally, the federal funds rate indirectly influences longer- term interest rates such as mortgages, loans, and savings, all of which are very important to consumer wealth and confidence.”

In terms of the United States, interest rates have been pretty low for a sustained period of time since 2008. Besides 2022 where the federal funds rate increased above 3% in October, the federal funds rate has been under 2% every month except late 2018 and early 2019 where it peaked around 2.42% in April 2019.

In terms of many other countries, interest rates have been higher over the same period as some economies have grown too quickly while other economies have had to deal with high inflation.

The United States also has a unique situation in that its currency, the U.S. dollar, is the dominant reserve currency of the world. That means that the U.S. dollar is used by many other countries to conduct trade and to use as a store of value. Because the U.S. dollar is the reserve currency, U.S. interest rates are generally lower than what they would have been.

Congress describes the U.S. dollar,

The U.S. economy generally benefits from the dollar’s status as the world’s dominant reserve currency, once famously referred to as the United States’ “exorbitant privilege” by France’s finance minister in the 1960s. Because many central banks and financial institutions around the world want to hold U.S. dollars and dollar backed securities like U.S. Treasury bonds, there is strong demand for U.S. dollars. That demand, in turn, allows the United States to borrow more cheaply (at lower interest rates) than it would otherwise.

2022

Interest rates have increased in many countries around the world in 2022 given high inflation. In the United States, for example, the Federal Reserve has increased interest rates six times this year. As a result, mortgage rates have increased substantially and the housing market has cooled. Given that many economists believe the Federal Reserve will raise rates even further, many analysts think there could be a recession next year.

Interest rates of some economies outside the United States have been pretty low in 2022, however. Low interest rates can help an economy potentially grow faster by potentially increasing domestic demand.

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Methodology

For our list of 15 Countries with Lowest Interest Rates, we took 15 countries with the lowest interest rates in the world according to tradingeconomics.com.

15 Countries with Lowest Interest Rates

#15 Seychelles

Interest Rate: 2%

Reference Month: October 2022

Seychelles is a nation of 115 islands in the Indian Ocean that has beautiful beaches and coral reefs. Given the rebound in tourism this year, the IMF expects the country’s real GDP to grow 10.9% in 2022 and 5.4% in 2023. In addition to strong economic growth, Seychelles also has low monetary policy rate as the country has an interest rate of 2% as of October 2022. According to tradingeconomics.com, Seychelles interest rate has been 2% since early 2021 as inflation hasn’t really been a problem. In October, the country’s annual inflation rate was 2.92%, down from 2.96% in September.

#14 Morocco

Interest Rate: 2%

Reference Month: October 2022

Morocco is a nation in North Africa that borders the Atlantic Ocean and Mediterranean Sea. Given rising inflation in the country, the National Bank of Morocco raised the country’s benchmark interest rate by 50 basis points to 2% in September. Annual inflation in Morocco was 8.3% in September, up from 8% in August. If inflation remains too high, there’s a chance interest rates could rise again. Nevertheless, Morocco’s current 2% interest rate is fairly low when it comes to interest rates of other nations and the country ranks #14 on our list of 15 Countries with Lowest Interest Rates.

#13 Barbados

Interest Rate: 2%

Reference Month: October 2022

Like Seychelles, Barbados is expected to benefit from a rebound in tourism in 2022. According to the IMF’s estimates, the island nation’s economy could grow by 10.5% in 2022, making it one of the fastest growing economies in the world this year. With an interest rate of 2%, Barbados also happens to have one of the lowest interest rates in the world in 2022 too.

#12 Sweden

Interest Rate: 1.75%

Reference Month: October 2022

With annual inflation in the Scandinavian country surging to 10.9% in October, Sweden’s central bank hiked the country’s interest rate by an unprecedented 100 basis points in September to 1.75%. Given the central bank’s unprecedented raise, Sweden’s interest rates could rise in the next few months if inflation remains too high. In terms of the last ten years, Sweden’s interest rate has been below 2%.

#11 Taiwan

Interest Rate: 1.63%

Reference Month: October 2022

With an annual inflation rate of 2.72% in October versus 2.75% in September, Taiwan can afford to have lower interest rates than some other countries whose inflation rate is higher. Indeed, Taiwan’s 1.63% interest rate in October ranks 11th lowest in the world in terms of the monetary benchmark rate. In September, Taiwan’s central bank raised rates by 12.5 basis points to try to keep inflation lower.

#10 New Caledonia

Interest Rate: 1.5%

Reference Month: October 2022

New Caledonia is a French territory comprising of multiple islands in the middle of the Pacific. Given its beautiful beaches and barrier reefs, New Caledonia is a tourist destination. With an interest rate of 1.5%, New Caledonia’s domestic economy has low borrowing costs that could potentially increase demand.

#9 Denmark

Interest Rate: 1.25%

Reference Month: October 2022

Given annual inflation rose to 10.1% in October 2022 up from 10% in September, Denmark’s central bank increased the country’s interest rate in October to 1.25% from the previous 0.65%. The increase is in stark contrast to Denmark’s negative interest rates that the country imposed in 2012. Denmark’s central bank said, “The interest rate increase is a consequence of the increase by the European Central Bank of its main monetary policy rate.”

#8 Thailand

Interest Rate: 1%

Reference Month: October 2022

In August, the Bank of Thailand raised its interest rates for the first time in almost four years by 25 basis points to 0.75%. Given inflation higher than expected, Thailand’s central bank raised interest rates again by 25 basis points to 1% in September. While inflation has increased in the near term, there is still hope that the country will succeed in keeping inflation lower in the long term given the interest rate increases.

#7 Comoros

Interest Rate: 0.92%

Reference Month: June 2022

Comoros is a nation comprised of several islands off of Africa’s east coast. With an area of 863 square miles and a population under 1 million, Comoros’ economy doesn’t rank among the largest in the world. Nevertheless, Comoros’ interest rate of 0.92% as of June 2022 does rank as among the lowest in the world. Given higher inflation in the country since June, there is a chance that interest rates could rise in the country in the near term.

#6 Cambodia

Interest Rate: 0.73%

Reference Month: August 2022

Cambodia’s interest rate was 0.73% in August of 2022, down from the previous interest rate of 0.75%. Meanwhile, Cambodia’s economic growth is expected to be around 5.3% in 2022 and 6.2% in 2023 according to the Asian Development Bank in September. In the same month, the Asian Development Bank expects the inflation rate for 2022 in Cambodia to be 5%.

#5 Switzerland

Interest Rate: 0.5%

Reference Month: October 2022

Switzerland is one of the wealthiest countries in the world with a GDP per capita of over $93,457 in 2021. With an interest rate of 0.5%, Switzerland also has one of the lowest interest rates in the world. In September, the central bank raised rates by 75 basis points to 0.5%, potentially signaling that interest rates could rise further. Before the interest rate raise, Switzerland was one of the few nations with negative interest rates. Switzerland currently ranks #5 on our list of 15 Countries with Lowest Interest Rates.

#4 Fiji

Interest Rate: 0.25%

Reference Month: October 2022

With an interest rate of 0.25%, Fiji ranks #4 on our list of 15 Countries with Lowest Interest Rates. According to the Asian Development Bank, Fiji’s economy could expand 11.7% in 2022 and 8.5% in 2023, making the island country one of the fastest growing economies in the near term. Fiji’s economy is expected to grow due to the rebound in tourism.

#3 Cape Verde

Interest Rate: 0.25%

Reference Month: October 2022

Cape Verde is a nation comprised of several islands in the central Atlantic Ocean. Like some other countries, Cape Verde has to deal with high inflation in 2022, with the country’s inflation rate rising from 5.4% in December of 2021 to 8.2% in October of 2022. Interest rates in the country remain low, however, with the benchmark rate at Cape Verde at 0.25% in October of 2022.

#2 Bulgaria

Interest Rate: 0%

Reference Month: October 2022

According to tradingeconomics.com, Bulgaria has an interest rate of 0% for October 2022. In terms of its economy, Bulgaria has made substantial progress over the past few decades. The World Bank writes, “Bulgaria has undergone a significant transformation over the past three decades. It has transformed from a highly centralized, planned economy to an open, market-based, upper-middle-income economy securely anchored in the EU.”

#1 Japan

Interest Rate: -0.1%

Reference Month: October 2022

As the only country in the world with a negative interest rate, Japan ranks #1 on our list of 15 Countries with Lowest Interest Rates. As of October 2022, Japan had an interest rate of -0.1%, which is the same short term interest rate as that during September of 2022. According to the Bank of Japan’s estimates, inflation will be 2.9% in 2022, up slightly from the previous estimate of 2.3%, but still well below that of many other nations.

In terms of its history, Japan’s -0.1% interest rate isn’t unique. The country has had negative interest rates for six years and the country’s core inflation is still low when adjusting for the rising in energy prices. Although negative interest rates can make consumers want to spend more because it theoretically costs savers money to save, Japan’s consumption has not increased all that much over the past few years.

Nevertheless, Japan’s economy is expected to expand in the future. According to the IMF, Japan’s economy is expected to grow 1.7% in 2022. According to an OECD Economic Outlook, Japan’s economy is expected to grow 1.8% in 2023 and 0.9% in 2024 in terms of real GDP growth. Inflation is also expected to remain low in the next few years in the country.

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