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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
The central bank said that it would improve a mechanism used to establish the LPR in order to further lower real interest rates for loans.
Relative to what was expected when one of us (Summers) sought to resurrect the concept in 2013, deficits and national debt levels are far higher, nominal and real interest rates are far lower, and yet nominal GDP growth has been far slower.
Equity prices still look elevated on some traditional metrics, but these may understate the impact of structurally lower real interest rates," said Colin Ellis, Moody's managing director for Credit Strategy and co-author of the report.
In a speech at the "9th High-Level Conference on the International Monetary System" in Switzerland, New York Fed President John Williams stated: "Shifting demographic trends and a slowdown in productivity are driving slower trend growth and historically low levels of real interest rates across the globe.
Such decision is explained with the need to maintain anti-inflationary monetary policy, positive real interest rates and to reduce inflation expectations.
Typically, we do not think about different monetary policy regimes leading to different equilibrium levels of real interest rates or real GDP.
(2017) consider a panel dataset for 19 countries from 1870 to the present and emphasize how monetary regimes apparently impact real interest rates over long eras.
Getting the market to absorb those bonds will require higher real interest rates. All of this could make new savers happy, as returns on savings -- which have been subject to severe financial repression for most of the last decade -- begin to rise.
One long-run factor popular for explaining negative real interest rates is the low level of productivity growth in the economy.
This paper investigates the drivers of long term real interest rates in Brazil.
This suggests that changes in age profile not only have significant implications for savings, investment, real interest rates and growth but also for innovation.
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.

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