Economy

8 Nations Facing Sky-High Interest Rates and Inflation

Jon C. Ogg
Brazil

The nation of Brazil has struggled to find its footing after years of promise. Brazil’s central bank left its short-term rates unchanged at 6.5% on August 1, but that rate was as high as 14.25% as recently as mid-2016. Bloomberg’s interest rate monitor showed that Brazil’s 10-year government note was at a 12.16% yield as of August 31. This was down 17 basis points on the last day of August, but it was 88 basis points higher than a month earlier and was up a sharp 2.19% from a year ago.

The Wall Street Journal reported that sky-high lending rates are hurting consumers and economic growth alike. And Goldman Sachs has now lowered the country’s economic outlook. Brazil has more than 200 million people and is the most populated nation in South America. The CIA World Factbook ranks Brazil as the world’s eighth largest economy, which is supposed to be recovering from the recession in 2015 and 2016.

Egypt

Egypt’s central bank met in August and left its main interest rates unchanged and noted that an expected decline in inflation into single digits suggested that the nation’s monetary targets were on course. That sounds rosy enough, but the deposit rate of 16.75% and the overnight lending rate of 17.75% remain sky-high, compared with GDP growth of roughly 5.4%. Inflation had been running at 13.5% earlier in 2018, so a move down into single-digit percentages would be a welcoming sign.

The CIA World Factbook shows a population of 97 million people in Egypt, ranked as 14th in the world, but its $1.2 trillion economy of 2017 was ranked as 22nd in the world. Egypt previously floated its currency in 2016 and the devaluation was about half, and inflation of 30% was common in 2017.

India

If economic watchers think growth has been impressive in the United States and in China, India’s most recent GDP growth rate was recorded at 8.2%. Unfortunately, that accelerated growth comes as India’s rupee has continued to fall in value while consumer spending and manufacturing are up. The BBC showed that the Indian rupee fell by 3.6% against the U.S. dollar in August alone, its worst month in three years, and this was the rupee’s fifth straight month of decline.

The BBC also pointed out on August 31 that the rupee’s 10% drop so far this year has been tied to foreign investor concerns over India’s trade deficit and on inflation concerns over high oil and commodity prices. Bloomberg’s latest interest rate snapshot showed that the Indian 10-year government bond yield of 7.95% was up 23 basis points over the past month and was up 146 basis points over a year ago. The Reserve Bank of India has raised its benchmark interest rates by a total of 0.50% in the past two meetings to 6.5% as an effort to tame inflation that has been running above the medium-term target of 4%.

Iran

Iran has by many counts been a closed-off economy, and a fresh round of upcoming U.S. sanctions likely will make that generalization even more of a reality. The World Bank projects that Iran has a GDP of $439.5 billion and an estimated population of 80.6 million people in 2017, and GDP was projected to be up over 4% for 2018 earlier this year. After a slight dip under 10% inflation in 2016 and 2017, Statista projects that inflation in Iran will be close to 12% in 2018 and over 11% for the next three years.

President Trump exited the 2015 Joint Comprehensive Plan of Action “nuclear deal” and the prospects of more open trade with Iran haven’t materialized as more sanctions come. Forbes has reported that the black market for local currency is much weaker than the official rates and also that corruption is widespread as several economic ministers have lost their jobs. Unfortunately, Iran is a nation in which the economic reports are also considered to be questionable.

Turkey

The summer of 2018 has been nothing short of a crisis in Turkey, and despite inflation now registered at 18%, the Turkish central bank has been too slow to raise interest rates. The lira’s move to 6.60 per U.S. dollar compares to 4.65 at the start of June and 3.8 at the start of 2018. Turkey has 80 million people, and the CIA World Factbook’s figure of its $2.17 trillion economy ranks it as the world’s 14th largest economy. How this economy will remain as strong after the recent turmoil and drop in economic confidence remains a mystery.