Interest Rate History

The often interesting Visual Capitalist has published a graph of nominal interest rates from the 14th century through to today:

Select image for a larger look.

“Today’s graphic from Paul Schmelzing, visiting scholar at the Bank of England, shows how global real interest rates have experienced an average annual decline of -0.0196% (-1.96 basis points) throughout the past eight centuries.

Collecting data from across 78% of total advanced economy GDP over the time frame, Schmelzing shows that real rates* have witnessed a negative historical slope spanning back to the 1300s.  Displayed across the graph is a series of personal nominal loans made to sovereign establishments, along with their nominal loan rates. Some from the 14th century, for example, had nominal rates of 35%. By contrast, key nominal loan rates had fallen to 6% by the mid 1800s.

Centennial Averages of Real Long-Term “Safe-Asset”† Rates From 1311-2018

% 1300s 1400s 1500s 1600s 1700s 1800s 1900s 2000s
Nominal rate 7.3 11.2 7.8 5.4 4.1 3.5 5.0 3.5
Inflation 2.2 2.1 1.7 0.8 0.6 0.0 3.1 2.2
Real rate 5.1 9.1 6.1 4.6 3.5 3.4 2.0 1.3

*Real rates take inflation into account, and are calculated as follows: nominal rate – inflation = real rate.
†Safe assets are issued from global financial powers

Starting in 1311, data from the report shows how average real rates moved from 5.1% in the 1300s down to an average of 2% in the 1900s.

The average real rate between 2000-2018 stands at 1.3%.”

The current rash of negative interest rates that we see today is therefore in line with historical trends.

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