real interest rate

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Real interest rate

The rate of interest excluding the effect of expected inflation; that is, the rate that is earned in terms of constant-purchasing-power dollars. Interest rate expressed in terms of real goods, i.e. nominal interest rate adjusted for expected inflation.

Real Interest Rate

An interest rate after accounting for inflation. A nominal interest rate shows by how much an investment or account has grown in raw dollar amounts and may not be an accurate accounting of how well or poorly an investment is performing. The real interest rate adjusts for how much buying power has been affected and, therefore, provides a more accurate view. For example, if one has bond with a 5% coupon, and the inflation rate is 3%, the real interest rate is only 2%. The real interest rate does not take compounding into account.

real interest rate

The nominal current interest rate minus the rate of inflation. For example, an investor holding a 10% certificate of deposit during a period of 6% annual inflation would be earning a real interest rate of 4%. The real interest rate is a more valid measure of the desirability of an investment than the nominal rate is.

Real interest rate.

Your real interest rate is the interest rate you earn on an investment minus the rate of inflation.

For example, if you're earning 6.25% on a bond, and the inflation rate is 2%, your real rate is 4.25%. That's enough higher than inflation to maintain your buying power and have some in reserve, which you could use to build your investment base.

But if the inflation rate were 5%, your real rate would be only 1.25%.

real interest rate

the INTEREST RATE paid on a LOAN, adjusted for the effects of INFLATION. Thus, for example, if a borrower were to pay a 10% NOMINAL INTEREST RATE on a loan during a year when the inflation rate was 6%, then the ‘real’ interest rate would be only 4%. Inflation reduces the real burden of interest payments to borrowers while reducing the real return to lenders.
References in periodicals archive ?
The level of real interest rates is particularly important for share prices, because higher inflation raises nominal profits in a way that offsets the inflation component of higher interest rates.
1) Historically, negative real interest rates have been associated with high levels of inflation and efforts by the Federal Reserve to reduce high unemployment rates.
This suggests that changes in age profile not only have significant implications for savings, investment, real interest rates and growth but also for innovation.
The apex bank said that a decline in rate of inflation and high real interest rates have prompted it to cut back the savings bank deposits rate from 4 percent to 3.
That is, virtually all interactions in the marketplace that entail making a choice between spending now and spending later necessarily involve real interest rates, which specify the real cost of borrowing to make a purchase or, on the flip side, the real gain from saving.
Just as the nature of water changes when the temperature drops below zero degrees Celsius, so too does the nature of financial markets when real interest rates become negative.
Keywords: inflation expectations, neutral real interest rates, Taylor rule, negative interest rates
Deputy governor Ben Broadbent said real interest rates and tools such as quantitative easing (QE) - which sees the Bank print money to buy government bonds - have had little bearing on wealth and income distribution.
During the recovery from the Great Recession, real interest rates on government securities have stayed low, but real returns on capital have rebounded.
Ball and Croushore show that the SPF output forecasts are inefficient with respect to changes in monetary policy, as measured by changes in real interest rates, while Rudebusch and Williams show that the forecasts are inefficient with respect to the yield spread.
There remains room for interest rates to fall further, given positive real interest rates.
The critical point is that this level of expected real interest rates is already at the minimum possible, given the existing large savings gap in Turkey.

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