Markets · 6 pages · 12 min
Why a high nominal rate can still be cheap
A high money rate can still be a low real rate when inflation takes most of it back.
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From the opening
A high nominal rate can still be cheap because cheap, in this sense, means cheap in purchasing power, not small as a count of currency. If inflation is as high as the money rate, or higher, the lender's real compensation is about zero or negative even though the quoted rate looks large. The opening covers compare the quote with inflation, a large money rate can be thin, and negative real rates are cheap.
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Inside
- Compare the quote with inflation
- A large money rate can be thin
- Negative real rates are cheap
- Indexed rates do not erode
- Where the idea stops applying
- A distinction worth keeping
Sources
- Negative real interest rate
- Nominal rate versus inflation