Raunhagvexti

Raunhagvexti, also known as real interest rates, represents the nominal interest rate minus the rate of inflation. This concept is crucial for understanding the true return on an investment or the true cost of borrowing. When the nominal interest rate is higher than the inflation rate, the real interest rate is positive, meaning the purchasing power of the money invested or borrowed increases over time. Conversely, a negative real interest rate occurs when inflation outpaces the nominal interest rate, eroding the purchasing power of money.

Economists and policymakers closely monitor real interest rates as they influence decisions related to saving, investment, and consumption. Positive real interest rates generally encourage saving and discourage borrowing, as the return on savings is higher and the cost of debt is greater in terms of purchasing power. Negative real interest rates tend to have the opposite effect, incentivizing borrowing and spending while making saving less attractive. Central banks often adjust nominal interest rates with the aim of influencing real interest rates to achieve macroeconomic objectives such as controlling inflation or stimulating economic growth. Understanding raunhagvexti is therefore essential for grasping the dynamics of financial markets and the broader economy.