Definition of real interest rate

The actual interest rate (the nominal interest rate) minus the inflation rate. Real interest rates are considered when any monetary transaction has time factored in – for example you lend money to someone for a year and ask to be repaid the principal plus interest of 5 per cent. Over that year, however, inflation runs at 3 per cent. This means that, in effect, you will only have been paid 2 per cent for the lending risk.


real interest rates in the news

In June 2014 a writer on the FT's economics and markets blog rejected the idea that real interest rates were likely to remain low in the world's developed economies. Contrary to the the view that real interest rates are correlated to growth, he said evidence showed this not to be the case.

US growth vs real interest rates

FT Articles & Analysis