Real interest rate
The return left after adjusting a nominal interest rate for expected or realized inflation.
Plain languagePractical exampleConnected reading
01
What is it?
The return left after adjusting a nominal interest rate for expected or realized inflation.
02
Why does it matter?
It helps assess saving incentives, currency demand and the tightness of financial conditions.
03
How should it be read?
State clearly which nominal rate and inflation measure are paired.
04
Common mistake
Treating the policy rate minus past inflation as the only definitive real rate.
A simple example
A 40% nominal return with 32% expected inflation implies roughly a 6.1% compound expected real return.