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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).
Chart 1. Interest rates, inflationary expectations, and the real rate of interest The interest rates your bank pays on deposits or the interest rate yields you see quoted in the newspaper for U.S. Treasury securities are â nominal interest rates,â that is, unadjusted for inflation.hen inflation and inflationary expectations, or both change, nominal interest rates will tend to adjust, and may result in shifts in the slope, shape, and level of the yield curve, as well changes in the estimated real interest rate (see August 2003 Ask Dr. Econ).