Countries With Highest Real Interest Rates

Businesses, investors, and financial institutions often rely on borrowing; taking loans in a bid to have more capital for investment. A continual flow of capital in a way ensures the business venture or investment continues to thrive. Individuals also take loans for various reasons, ranging from business to reasons. Loans are usually paid back with interest rates, i.e. extra money paid on the initial sum borrowed. The interest paid back varies according to the rate set by the lending party (banks, etc.) for the duration of time agreed by both the lender and the borrower. 

Real interest rates are the interest rates adjusted for inflation. Real interest rates are calculated by subtracting the rate of inflation from the nominal interest rate. Real interest rates are set for different reasons and purposes concerning the economy of a nation. Real interest rates have an impact on the following:

• Rate of borrowing: high real interest rates discourage borrowing.
• The economic growth of a country: this effect could either be positive or negative depending on the peculiarity of the situation.
• Financial gain/yield: Higher real interest rates reduce the financial gain expected in the long run.
• Rate of inflation: high real interest rates reduce the rate of inflation.

According to the World Bank Report based on 2022 reference data, South America remains the region with the highest real interest rate in the world. Brazil remains on top of the pack as the country with 6.94%, closely followed by Mexico and Chile with 6.05 and 4.92% respectively.

South Africa is the only African country in the list of top 10 countries with the highest real interest rates. Surprisingly Zimbabwe with its well-known hyperinflation and near collapse of its currency is nowhere near the top.  Nigeria though has high lending rates, still maintains a very low real interest rate of less than 0.5%.

Top 10 countries with high real interest rates

Top 10 countries with high real interest rates

Brazil

Brazil is a South American country, with a population of over 216mn people and a GDP of $2.126tn. Its currency is the Brazilian Real. Known for its beaches, Brazil boasts of beautiful scenery. It is the largest producer of coffee in the world. It’s also famous for its colourful carnivals, passion for football, and rich culture making it a top tourist destination for many people.

Mexico

Next on the list is Mexico. This country shares its border with the US. It has a population of over 128mn people and a GDP of $1.663tn, its currency is the Mexican Peso.  The country has a rich presence of ancient cultural monuments, like the Mayan and Aztec civilizations. Mexico is also known for its large production of coffee, which it exports to many countries. Its high real Interest rate can be attributed to factors like:

Chile

The third country with the highest interest rate is Chile. It is a South American country with a population of over 19mn people and a GDP of $459bn. Its currency is the Chilean Peso. Chile is one of the leading wine producers in the world. Chile is also the largest producer of copper in the world with many large copper mines located there. Chile’s high real interest rate comes from factors like the depreciation of its currency; the Peso; and the high rate of inflation.

Philippines

The Philippines has a population of over 117 million people with a GDP of $435.7bn. The Philippines is a developing country in Southeast Asia. Its capital is Manila, and its currency is the Philippine Peso. It has over 7,000 islands and boasts of a rich culture and beautiful festivals. 

Indonesia

It is a country in Southeast Asia, with over 17,000 islands! Its currency is the Indonesian Rupiah and it has a GDP of $1.417tn. It is the fourth most populous country in the world, with over 278 million people. Indonesia is the fifth top country with high real interest rates. Its high interest rates can be attributed to the following: high rate of inflation, and the strength of its currency; Low domestic savings rate, and huge debt profile. As of August 2023, the debt profile stood at $516.5bn (ceicdata.com)

Columbia

This South American country comes sixth on the list. It currently has a population of over 49 million people. Its currency is the Colombian Peso (COP) with a GDP of $363.84bn. It is a major exporter of coffee, second only to Brazil; it is also a notable producer of emeralds. 

Hong Kong

It’s a special administrative region of China, with a high level of autonomy. It has a population of and a population of over 7.3 million people as of 2022. It has a GDP of $385.55bn and its currency is the Hong Kong dollar. Known for its beautiful skyscrapers; over 4,000 of them (Wikipedia), it’s a popular tourist destination with its beautiful scenery and many shopping destinations. 

South Africa

This country ranked 8 on the list is the only African country included on this list. It has a population of over 60 million people and it is ranked the 6^th most populous African country. Its currency is the Rand and it has a GDP of $380.9 bn. South Africa is rich with diverse cultural heritage and expressions.  It is also a rich tourist destination with many tourists visiting every year with places like the Kruger National Park attracting wide attention. 

Israel 

It’s a country in the Middle East with a population of over 9.1 million people. It has a GDP of $521.7 billion. Its currency is the Israeli New Shekel. It’s known all over the world for its holy sites, technological advancements, etc. Every year, pilgrims from all over the world converge to visit some of its historic sites.

India

India is currently the most populous country in the world with over 1.4 billion people. It has a GDP of $3.7 trillion. Its currency is the Indian Rupee. It is known for its large population, history and culture. It is also known for its religious diversity, its popular movie industry, and its cuisines.

A dominant factor for the countries reviewed is the high rate of inflation. Another major factor is government policies and debt profile. These factors need to be taken into consideration in a bid to reduce the real interest rate. It is worth mentioning that some countries introduce these high rates in a bid to curtail rising inflation. Accurate and well-delivered economic policies will play a major role for many of the countries that desire to reduce their real interest rates.