Okuzeka
Economics vocabulary · Central Banks and Interest Rates

Real interest rate

Meaning in economics, with examples

nounCommon term

In economics, real interest rate means: An interest rate after taking away inflation; it shows how much more a lender really gets back in terms of what the money can buy.

In Turkish: reel faiz, reel faiz oranı

How it is used

Roughly calculated as the nominal interest rate minus inflation or expected inflation. When inflation is higher than the interest rate, the real rate is negative and savers lose purchasing power. Central banks and analysts discuss whether real rates are positive, negative or restrictive.

Example sentences

  1. With inflation at 6% and the policy rate at 4%, the real interest rate is about minus 2%.

  2. Savers lost out for years while real interest rates stayed negative.

Common collocations

  • negative real interest rates
  • positive real interest rate
  • ex-ante real interest rate
  • real rates
  • interest rateThe price of borrowing money, shown as a yearly percentage of the amount borrowed; for savers, it is the return they earn on deposits.
  • nominalMeasured in current money values without adjusting for inflation, such as a salary or a GDP figure expressed in today's prices.
  • in real termsMeasured after removing the effect of inflation, so that a figure shows the true change in what money can buy.
  • inflationA general and continuing rise in the prices of goods and services in an economy, which means each unit of money buys less over time.
  • policy rateThe main interest rate set by a central bank, which guides the rates that banks charge each other, businesses and households.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Central Banks and Interest Rates

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This page explains English vocabulary for learners. It is not financial advice.