Real Interest Rate

Short definition

The real rate is the nominal rate after inflation. Ex ante (expected inflation) is the decision measure; ex post (realised) is the outcome. It is the borrower’s real burden and the saver’s real return.

Detailed explanation

Fisher’s r − π is an approximation; high inflation needs the compound formula. Which π? CPI, PPI or the firm’s basket — borrower and lender do not live the same basket.

A negative real policy rate can pump demand while commercial loans stay positive real. The fair-return debate sits where the real rate is risk premium rather than extraction.

Why it matters for the CFO

The investment hurdle and inventory policy should look at the real rate. Nominal 40% with 45% inflation is a different debt burden.

How it is calculated

r_reel ≈ (1 + r_nominal) / (1 + π) − 1 (π = beklenen veya gerçekleşen enflasyon)

The compound form is required at high π. r − π is enough only at small rates.

Variables in the formula

• r_nominal: nominal rate
• π: inflation (ex ante expected, ex post realised)

How to read it

Ex ante real is the price at the decision; ex post tells who gained. An expectation miss is a wealth transfer.

Numerical example

Nominal loan 48%, expected CPI 35%: r_real ≈ 1.48/1.35 − 1 ≈ 9.6%. If π = 50%, real ≈ −1.3%.

Definitions are educational. They are not investment, credit or tax advice.