Visualizing Real Interest Rates Around the World
[EDIT: For up-to-date real interest rate charts see here.]
One of the most important themes over recent years has been the presence of negative real interest rates in the developed world. Whether one likes it or not, it has a big impact on how institutional money is allocated. Professional investors, who are under constant pressure from clients to make money, feel compelled to chase market momentum, especially when their clients’ money is slowly withering away because of negative real rates of interest. As Jeremy Grantham puts it:
The central truth of the investment business is that investment behavior is driven by career risk. In the professional investment business we are all agents, managing other peoples’ money. The prime directive, as Keynes knew so well, is first and last to keep your job. To do this, he explained that you must never, ever be wrong on your own. To prevent this calamity, professional investors pay ruthless attention to what other investors in general are doing. The great majority “go with the flow,” either completely or partially. This creates herding, or momentum, which drives prices far above or far below fair price. There are many other inefficiencies in market pricing, but this is by far the largest. It explains the discrepancy between a remarkably volatile stock market and a remarkably stable GDP growth, together with an equally stable growth in “fair value” for the stock market.
We think that negative real rates only aggravate the situation…
So, to keep you posted on this dynamic here we present a comprehensive guide to real interest rates around the globe. The first chart gives you a global view, and the latter charts allow you to explore individual countries in detail. We include local currency gold prices so that you can gauge the impact of real rates on capital flows. Data updated to December 2012:
Click below to view real interest rate charts for individual countries.
|North America||Europe||Asia||Eastern Europe||Latin America||Australasia||Middle East & Africa|
|United States||Euro Area||China||Czech. Republic||Brazil||Australia||Israel|
Middle East & Africa
Recommended: Charting the Federal Reserve's Assets - 1915 to 2012