High real interest rate
- July 20, 2020
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Subject: Economy
Context:
- High real interest rates are holding back investments in Indian economy
Concept:
- Real interest rate is essentially derived after subtracting the inflation rate from the nominal interest rate.
- RBI targets retail inflation, which is calculated by the Consumer Price Index (CPI), it is easy to believe that the real interest rates are coming down.
- Real Interest (R) = Nominal Interest Rate (N) — Inflation Rate (I)
- If N is falling sharply and I is increasing the latest retail inflation was over 6% then, R or the real interest rate must be falling.