15 Countries with Lowest Interest Rates

Insider Monkey Team

November 23, 2022 at 3:20 AM·8 min read

In this article, we will take a look at 15 countries with the lowest interest rates. If you want to see more of the countries with the lowest interest rates, go directly to 5 Countries with 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.