ISTANBUL

Central banks across the globe drew the interest weapon 207 times while institutions and organizations pulled out all the stops to support economies in 2020 when the world was put in the "Great Lockdown".

The crisis caused by the novel coronavirus, when the most basic units of the economy from individuals to companies were shaken, borders were closed and a new economic era was commenced, is called the "Great Lockdown" after the "Great Depression" in the 1930s and the "Great Recession" in 2008.

The uncertainty due to such an unprecedented pandemic has also increased the need for liquidity. In response to this need, central banks worldwide tried to support financial markets and the real economy by taking steps in coordination with public authorities.

While the historical low interest policies and the unconventional expansionary monetary policies that central banks experienced during the 2008 financial crisis were re-engaged, the US Federal Reserve took the lead in the actions in 2020.

With the first COVID-19 case detected in the US, Fed cut its benchmark interest rate by half a percentage point at the beginning of March, the largest cut since the 2008 financial crisis. Soon after, it lowered the benchmark rate to between 0 and 0.25%.

While many central banks followed the path opened by the Fed, a global low interest period started again.

Most rate cut in March

In the first month of 2020, the central banks of North Macedonia, South Africa, Malaysia, Kenya, Argentina, Ukraine, Sri Lanka, and Azerbaijan, as well as Turkey's, reduced interest rates, ranging from 25 to 200 basis points.

In February, 13 countries, including Turkey, again lowered interest rates. Thailand, Iceland, Brazil, The Philippines, Russia, Belarus, Argentina (two times), Mexico, Namibia, Indonesia, The Gambia, and China, where the outbreak peaked, were other countries that cut interest rates during this period.

When coronavirus broke out in many countries and the borders were started to be closed in March, the US, the UK, Australia, Bahrain, Chile, Czechia, Hong Kong, Iceland, Jordan, Kuwait, Macau, Moldova, Norway, Pakistan, and Saudi Arabia cut the interest rates twice, while Canada and Paraguay cut three times.

On the other hand, Turkey, Albania, Armenia, Argentina, Colombia, Brazil, Dominican Republic, Egypt, Fiji, Ghana, India, Indonesia, Kazakhstan, Kenya, Malaysia, Mauritius, Mexico, Mongolia, Morocco, Namibia, New Zealand, North Macedonia, Papua New Guinea, Peru, The Philippines, Poland, Romania, Serbia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Trinidad and Tobago, Tunisia, Ukraine, and Vietnam raised the interest rates once.

Overall, 54 central banks tried to support the economy by using the interest rate 73 times, with 17 of them using more than once, in March, making it the month which saw the most interest rate cut throughout the year.

Interest rate cuts continue in 2nd quarter

In April, when many countries saw the peak of the pandemic, central banks continued to reduce interest rates.

Twenty-seven countries -- Turkey, Armenia, Botswana, China, Colombia, Georgia, Israel, Kazakhstan, Kenya, Mauritius, Mongolia, Mozambique, Namibia, Pakistan, Paraguay, Peru, The Philippines, Poland, Russia, Rwanda, Serbia, South Africa, Sri Lanka, Tajikistan, Uganda, Ukraine, and Uzbekistan cut interest rates.

In May, the central banks of Malaysia, Brazil, Sri Lanka, Norway, Czech Republic, Belarus, North Macedonia, Vietnam, Mexico, Pakistan, Iceland, Thailand, Zambia, Turkey, South Africa, India, South Korea, Poland, Nigeria, Gambia, Romania, and Colombia reduced interest rates.

Looking at the actions of the central banks in June, the interest rates were cut 19 times, namely by Uganda, Serbia, Ukraine, Armenia, Morocco, Namibia, Brazil, Mozambique, Indonesia, Russia, Azerbaijan, Belarus, Paraguay, Hungary, Georgia, The Philippines, Pakistan, Mexico, and Colombia.

Slowdown in interest rate cuts as of 3rd quarter

As of the third quarter of 2020, when the steps for normalization from the pandemic accelerated, many central banks had no more room for maneuver in using the interest rate weapon, thus, the actions slowed down. On the other hand, the central banks cut interest rates in July, August, and September 10, 8, and 11 times, respectively.

Malaysia, Sri Lanka, Indonesia, Kazakhstan, Hungary, South Africa, Russia, Tajikistan, Azerbaijan, and Colombia cut interest rates in July; Georgia, Brazil, Romania, Moldova, Mexico, Namibia, Zambia, and Colombia in August; and Dominican Republic, Moldova, Uzbekistan, Mongolia, Armenia, Azerbaijan, Nigeria, Egypt, Mexico, Colombia, and Vietnam in September.

On the other hand, Turkey raised its interest rates in September for the first time in 2020. Turkey's Central Bank raised its one-week repo rate – also known as the bank's policy rate – by 200 basis points, increasing from 8.25% to 10.25%.

3 countries raise interest rates in last quarter

In the last quarter of 2020, the actions slowed down significantly in terms of the interest rate cut cycle, and few countries used this tool. However, Turkey, Argentina, and Armenia raised interest rates.

Trying to find a balance between optimism regarding the accelerating vaccine studies and the second wave concerns over the pandemic, the central bank administrations cut interest rates in October, November, and December four, eight and two times, respectively.

Tunisia, Botswana, and Argentina (twice) lowered interest rates in October; Australia, Moldova, Malawi, Egypt, Iceland, Indonesia, The Philippines, and Mongolia in November; and Serbia and Azerbaijan in December.

Colombia reduces interest rates 7 times

With cut in interest rates seven times, Colombia was the country whose central bank made the most interest rate cut last year.

In 2020, Argentina and Mexico reduced interest rates six times, while Turkey, Pakistan, Paraguay, Brazil, The Philippines, Namibia, Azerbaijan, Moldova, Indonesia, South Africa, Sri Lanka, and Iceland cut five times.

In terms of the size of the actions taken, Argentina's Central Bank topped the list. The bank, which lowered interest rates six times during the year, cut the policy rate by 1,400 basis points in total, from 48% to 36%.

Russia, Serbia, Ukraine, Mongolia, Armenia, Malaysia reduced the interest rates four times, while Australia, Belarus, Canada, Kenya, Czechia, Egypt, Vietnam, North Macedonia, Poland, Georgia, Norway, Romania, and Thailand cut three times.

Additionally, the countries such as Dominican Republic, Botswana, Bahrain, Chile, China, Gambia, Hong Kong, Hungary, India, Jordan, Kazakhstan, Kuwait, Macau, Mauritius, Morocco, Mozambique, Nigeria, Peru, Saudi Arabia, South Korea, Tajikistan, Tunisia, Uganda, the UK, the US, Uzbekistan, and Zambia reduced their interest rates two times.

*Writing by Tuba Sahin and Yunus Girgin in Ankara