Turkey's President Recep Tayyip Erdogan has set an ambitious target of 5% domestic product growth for 2020 and wants the official interest rate to be in single figures next year.

By Ian Horswill

Posted on December 18, 2019

Remember when official interest rates were in double figures? There is one country in the world where that still exists – Turkey.

Turkey has an official interest rate – the rate at which banks can borrow money from the central bank – of 12% and President Recep Tayyip Erdogan has overseen four aggressive official interest rate cuts since July when it was 24%.

Turkey entered recession at the end of last year, according to the Turkish Statistical Institute, due in large part to the trade war with the US. The economy grew 0.9% in the three months ending in September from the same period the year before and Erdogan repeatedly has said that he wants the cash rate to be reduced to single figures to stimulate the economy.

Erdogan, an opponent of high interest rates, reported the Financial Times, oversaw the bank cut rate by 10% since July. This month, Turkey’s monetary policy committee announced a further 2% cut, bringing the official interest rate down to 12%.

Erdogan’s government has set an ambitious target of 5% gross domestic product growth for next year and is hoping the use of credit growth will achieve it.

Mexico has the second highest offical interest rate of 7.5% and it has cut the official rate three times this year. President Andres Manuel Lopez Obrador, who yesterday announced that the minimum wage would rise 20% to 123.22 pesos (US$6.50) a day next year, is trying to revive a sluggish economy and is targeting 4% economic growth.

The Central Bank of Mexico (Banxico) last month lowered its benchmark interest by 25 basis points to 7.5%.

“The balance of risk to growth remains tilted downwards,” Banxico said in its statement. “Among risks which could affect performance of Mexican assets are uncertainty over bilateral relations between Mexico and the United States. Risks also include Pemex and Mexico’s sovereign debt rating.”

Mexico’s economy has grown at just 2.4% a year over the past 25 years, half the emerging-market average. This year will likely be worse, with growth forecast at 1% or less.

South Africa has the third highest official interest rate in the world at 6.5%, with its central bank keeping it unchanged at the end of last month. The country has its lowest level of inflation in eight years – 3.7%.

The reserve bank’s governor, Lesetja Kganyago, said it would like to see inflation anchored closer to the midpoint of the inflation target range on a sustained basis — the inflation rate target for the bank is between 3% and 6%. The reserve bank also revised down their gross domestic product (GDP) forecast for 2019 to 0.5% from 0.6%. Their forecast for 2020 and 2021 was also decreased to 1.4% from 1.5% and 1.7% from 1.8% respectively.

South Africa’s economy contracted for a second quarter this year in the three months to September as farming, mining and factory output slumped.

The contraction means full-year economic growth, which hasn’t exceeded 2% since 2013, could be even lower than the 0.5% projected by national treasury in October. That will add to the woes of an economy buckling under failing state companies and ballooning debt that’s been sapping business and consumer confidence, reported Bloomberg.

On the other end of official interest rates, the European country of Switzerland has the lowest at -0.75. It is one of five central banks with negative official interest rates – Denmark 0.7%, European Central Bank -0.4%, Sweden -0.3% and Japan -0.1%. A central bank’s negative offical interest rate means that banks and other financial firms would have to pay to keep their excess reserves stored at the central bank rather than receive positive interest income.

La Chaux-de-Fonds is a famous Swiss city located in the Jura mountains at an altitude of 1000 metres, south of the French border.

Switzerland’s economy is not expected to see any sustainable growth until 2021. The economy is underpinned by strong pharmaceutical and chemicals sectors, which see strong demand even during economic downturns.

The government’s federal council believes economic growth would rise only 0.9% this year, 1.7% in 2020 and 1.2% in 2021.

“The international environment remains unfavourable. In particular, the weak growth can be expected to continue in the eurozone as well as in Germany, the single most important trading partner,” said the Federal Council.

Read Next: Switzerland voted ‘the best country in the world’