The prolonged period of high and stickier-than-expected inflation worldwide has resulted in surging interest rates—one of the few financial levers that central banks have at their disposal to put a dampener on rising prices.
At the time of writing (January 2024), the Reserve Bank of Australia’s cash rate—which influences borrowing rates across the economy—stands at 4.35% after 14 hikes. The rate that borrowers pay on their home loans is set even higher than this by the banks, with most variable mortgages now around 7% in many cases.
The story is similar in the US, where rates stand in a range between 5.25% and 5.5%, while across the Eurozone trading block as a whole, borrowing costs sit in a range between 3.75% and 4.25%.
For many Aussie households, the current elevated cost of borrowing is scary; yet the RBA continues to target an inflation rate between 2-3% to bring this back down to a level household spending is more accustomed to.
It’s not necessary to look too much farther afield, however, to see that things could be a good deal worse. See table 2 below.
Take Russia, for example, which was forced to hike its key interest rate by 3.5% last year to 12% after its national currency fell below the psychological mark of 100 roubles to the US dollar.
In South America, central bank rates in Brazil and Colombia are even higher and both stand at 13.25% in June last year. Unsurprisingly, in the face of soaring inflation, borrowing costs in Turkey are also elevated, coming in at 42.5%
In war-torn Ukraine, the figure was 22% mid-year of 2023—the same as in Pakistan—but by year’s end had lowered to 15%.
Given their surging inflation rates, it won’t be a shock to discover that both Venezuela and Argentina also share the dubious distinction of imposing some of the world’s highest interest rates on their borrowers.
This summer in Australia, the official cost of borrowing in Venezuela stands at a shade over 56% —an astonishingly high figure until you discover that in Argentina the figure is 118%, while borrowing costs in Zimbabwe stand at 100%.
The revelation won’t ease the cost-of-living crisis for Aussies at home, but it provides a salutary reminder of the benefits of living within a relatively stable economic environment.
