2 min read
Definition
The real interest rate is the nominal rate minus inflation. If you borrow at 9% while inflation runs at 4%, the real cost is roughly 5% — inflation erodes the real value of the fixed sum you repay. For savers the same maths can turn a positive nominal return into a negative real one.
In plain terms
It is the rate that counts once you strip out the shrinking value of money. High inflation quietly makes fixed-rate borrowing cheaper in real terms.
Why it matters for your company
Factor inflation into long-term borrowing and saving decisions — the real rate, not the headline, drives the outcome. See nominal rate.
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