Real Rate

Real rate means an interest rate adjusted for inflation. In simple terms, real rate shows the return or cost of borrowing after considering inflation. Real rates are important because they help investors understand whether money is truly gaining or losing purchasing power. Higher real rates can make borrowing harder and can pressure risk assets like stocks. For example, if an interest rate is 5% and inflation is 3%, the real rate is about 2%. Real rate is not the same as nominal rate. Nominal rate is the stated interest rate, while real rate adjusts for inflation.