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 BSP s moving from a regime of negative real interest rates to positive real interest rates is more sustainable in the long run; it avoids bubbles and maintains the growth of savings.
Dubai: Real interest rates worldwide have also declined substantially and will remain low for some time, as the effects of the global recession are likely to persist over the next few years.
In the latest excerpt released from its World Economic Outlook, April 2014, the International Monetary Fund (IMF) says real interest rates worldwide are expected to increase in the medium term with the normalisation of global economic conditions, reversing the decline into negative territory after the global financial crisis.
One would expect that, as a normal matter, real interest rates would be lower.
This idea is rooted in a perception that real interest rates are constant.
Negative real interest rates, inflation, currency devaluation, capital controls and outright default are among the costs, or haircuts from global central banks' unprecedented monetary stimulus.
Bad news for cash flush companies, pensioners and other fixed income earners as Namibia has been experiencing a negative real interest rates for the past three months.
Kanas (Kanas, 2008) found evidence of regime switching dynamics in the USA and the UK real interest rates during the period 1881-2003.
The real interest rates are computed based on trade weights at the industry level.
RIP theory hypothesises that, if economic agents have rational expectations and goods and financial markets arbitrage is operational, the real interest rates between countries will match one another.
Federal Reserve Chairman Paul Volcker began steering the US economy toward positive real interest rates in 1980 and Volcker's goal was met in 1992--the same year the S&P 500 overtook gold.
There is no doubt that record food prices and soaring energy costs are whittling away at consumer purchasing power and investor returns, driving real interest rates - a benchmark rate minus inflation - deeper into negative territory.