The Brazilian Central bank latest decision to lower the basic interest rate by half a percentage point to 11%, confirms Brazil leadership as the country with the highest real interest rates in the world. An honour it has held interruptedly for the last 23 months.
Brazil took first place in January 2010 when it jumped from its traditional long established second ranking, according to a paper from Cruzeiro do Sul Corretora international analyst Jason Vieira, who ranks real interest rates for the forty major economies of the world.
With the latest decision, Brazil’s real interest rate leads with 5.1% annually, followed by Hungary with 2.5%. The basic real rate is obtained by subtracting from the nominal rate the expected inflation for the next twelve months.
However Vieira points out that the fall in real interest rates since the previous ranking occurs because of higher future inflation projections. “This is the result of the latest rise in prices, mainly for food and housing”, pointed out Vieira.
This is a phenomenon not limited to Brazil, “even in developed economies the projections for food and energy prices are upwards thus with inflation, and therefore lowering real rates, no matter how fast or slow economic activity”.
According to Cruzeiro do Sul for Brazil to abandon top of the list it would be necessary for the Selic rate to be cut by a further 3.5 full percentage points. This way it would reach a real interest rate of 2.3%, just below Hungary.
The top ten ranked behind Brazil and Hungary are Indonesia, 1.5%; Chile, 1.5%; Mexico, 1.3%; China, Russia and Australia with 1%; Colombia 0.7% and Taiwan 0.6%.
Of the forty economies ranked, 26 have negative real rates with the last places for Hong Kong, minus 5%; Singapore, minus 5.1% and Venezuela, minus 7.4%.