So I do think we'll
see nominal interest rates.
Not exact matches
What exactly do you
see playing out in terms of negative
nominal interest rates or just negative real
interest rates with rising inflation?
Graham Summers: I think we'll
see actual negative
interest rates meaning the
interest rate is in the negative like negative three in
nominal terms.
But as I noted last week (
see Two Point Three Sigmas Above the Norm),
nominal growth and
interest rate variations have historically canceled out over the past century, with little effect on the accuracy of our valuation estimates — matched reductions in the growth
rate and the discount
rate really don't affect fair value.
The added bonus is that you can calculate your effective
interest rate — your
nominal, or quoted,
interest rate adjusted for the loan term and compounding
interest — so you can really
see how much your paying for that mortgage.
You
see, many Eastern European borrowers like the idea of borrowing in Swiss francs or Euros, because the
nominal interest rate is currently drastically lower than what they'd pay on a local currency loan.
By taking the real
rate of return into consideration (
nominal interest less inflation), you can
see how soon a particular investment will double the value of your money.
See, finding the
nominal interest rate isn't so tough!