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DEFINITION of 'Nominal Interest Rate'. The interest rate before taking inflation into account. The nominal interest rate is the rate quoted in loan and deposit agreements. The equation that links nominal and real interest rates is: (1 + nominal rate) = (1 + real interest rate) (1 + inflation rate).
This means the demand for borrowing money for investing in business or for consumer purchase on credit. The interest rates tend to increase when demand increases and decrease when demand increases. The equilibrium rate of interest is the rate at which the demand for money equals the supply of money.his means the demand for borrowing money for investing in business or for consumer purchase on credit. The interest rates tend to increase when demand increases and decrease when demand increases. The equilibrium rate of interest is the rate at which the demand for money equals the supply of money.