**Table 3. Number of Countries with IRC by Product Type**

||All<br>business<br>loans|_Some_<br>_business_<br>_loans_|All retail<br>loans|_Some_<br>_retail_<br>_loans_|All<br>deposits|_Some_<br>_deposits_|
|---|---|---|---|---|---|---|
|East Asia & Pacific|1|_1_|1|_3_|0|_2_|
|Europe & Central Asia|12|_0_|15|_7_|3|_1_|
|Middle East & N. Africa|2|_0_|2|_0_|1|_0_|
|North & South America|6|_2_|6|_5_|3|_9_|
|South Asia|0|_0_|0|_1_|1|_2_|
|Sub-Saharan Africa|9|_0_|10|_0_|9|_1_|
|High Income|12|_0_|14|_8_|3|_5_|
|Low & Middle Income|18|_3_|20|_8_|14|_10_|

While the majority of legal limits on lending rates are based on primary legislation, the basis for restrictions on deposit rates, both floors and ceilings, is evenly split between primary legislation and administrative regulation. Three out of four countries imposing ceilings on lending rates, including all high income economies, did it through a law, with many of these being statutory laws or special legislation. In some cases, such as Paraguay, the authority to regulate interest rates beyond the conduct of monetary policy is incorporated into the central bank articles. Other countries have special laws, which can take the form of specific anti-usury laws, such as those in El Salvador, Italy or Uruguay, or could be part of a more general consumer protection act, such as the ones enacted in Finland, Korea (Republic of) or San Marino. Restrictions on deposit rates additionally rely on administrative regulation, which typically takes the form of central bank directives. For example, the deposit rate floor prevalent in WAEMU countries is based on a decree of the Council of Ministers and the Board of the Central Bank of West African States. Finally, one notable exception where the basis of IRC regulation is a court ruling is the British dependency of Guernsey, where part of the legal system is based on customary law.

Fixed or absolute limits are the typical methodology employed for setting IRCs, regardless of the restriction type. The methodology for determining the level at which interest rates are limited is a critical feature of the interest rate regime. Countries that set a fixed maximum (or minimum) rate introduce an additional rigidity that makes them less responsive to changes in the macroeconomic environment. However, relative rate limits come in different flavors, ranging from those set relative to a benchmark market rate to others set as a spread over an administrative rate, with discretion for the government to determine the latter (turning many of these into quasi-fixed frameworks). Rates set relative to central banks’ policy rates deserve a separate mention, as they introduce some flexibility at the cost of distorting the monetary transmission channels, as it became manifest in Kenya’s failed attempt to control interest rates. Figure 3 shows that countries that decide to impose IRCs often choose a hard ceiling (or floor). However, some countries opt for flexibility when imposing caps on rates. Surprisingly, data on lending rate ceilings show that low and middle income economies are as likely as their high income peers to choose a benchmark market rate (both at 27 percent of those with IRCs). As far as caps on deposit rates are concerned, only Sri Lanka and the United States have set their maximum rate relative to a market rate, while Belgium and Morocco set theirs in relation to their central bank policy rate.

IRCs are typically applied to deposits and loans denominated in local currency. In the case of deposit rate floors, all but one country (Belgium, where a floor is set for rates on deposits 10