Below is a graph showing the interest rates of various countries in the world:
The countries with the lowest current interest rates (as of 9th October 2011) are Switzerland coming in first postition with 0%, then followed by Japan in second position with 0.1% and the US coming third with 0.25%.
The countries with the highest current interest rates (as of 9th October 2011) are Brazil with 12%, then followed by Egypt and India with 8.25%.
Is it better to have high or low interest rates?
Both high and low interest rates offer advantages and disadvantages.
Effects of low interest rates:
The theory expected when interest rates are low is that people will be able to buy more products and services as a result of lowered interest rate repayments. So the demand to purchase houses and cars should go up. Also people will be less inclined to invest or save money in their bank saving accounts as the return of interest is low. The rise of the demand to buy goods and services pushes prices up, so this results in inflation. If prices go up, sales of products and services abroad go down so export is affected. Also inflation results in the currency to becomes devaluated as each unit of currency buys fewer goods and services.
In conclusion what are the pros and cons of low interest rates?
The pros for low interest rates are:
- Ability to buy more products and services,
- Boost to the economy thanks to a rise in consumer spendings,
- Belongings such as houses, gold or land go up in price.
The cons for low interest rates are:
- Less investment or savings so less capital available,
- Devaluation of currency,
- Less export trades
Effects of high interest rates:
The theory expected when interest rates are high is that banks will pass on higher interest rates to their customers' savings. So the money in savings accounts will get a good return thanks to high interest rates. Also inflation will be kept under control as the demand to buy products and services becomes steady or may go down. If goods and services are good value for money, then sales abroad go up so this results in an increase in export trades. The currency becomes stronger or is worth more as prices remain steady or may go down which means that for each unit of currency people can buy an expected amount of goods and services or more.
In conclusion what are the pros and cons of high interest rates?
The pros for high interest rates are:
- More investment or savings so more capital available,
- Strong currency so money can be stretched further,
- More export trades.
The cons for high interest rates are:
- Lower sales of products and services as people find higher loans more difficult to pay back,
- Reduction of the rate of economic growth as a result of lower buying demand,
- Items such as houses, gold or land may go down in price.
Graph created by using the
http://www.chartgo.com/ website
Data retrieved from:
http://www.fxstreet.com/
