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Interest Rates and Inflation Rates

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    Interest Rates and Inflation Rates

    Would it be wrong if we keep the interest rate at the rate with which inflation is rising?
    Inflation lowers the original value of the money. If the inflation rates are equal to the interest rates, the lender can receive the same value of money which he had lent. Other wise, either the lende will be at loss or the borrower.

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    #2
    I've asked this question many times.. a lot of people don't understand the different terminology and just label everything as 'interest'. Inflation means exactly that. Take this example:

    If I lent you 100 today and asked you for the same back in 5 years. When the time comes that 100 will be worth more.. For that reason you will may me back more than the orginal 100 as it is worth more now. This is what inflation is.

    If interest rates are left at inflation levels then we can take it as money being worth what it is over a period of time. This concept is not technically wrong in Islam as it can be related to profit.

    However, anything that is above inflation, even a little bit is definately classed as interest and is wrong.

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      #3
      IN banking we adjust long term re-payments to current inflation rates on pure dollar terms thereby mitigating loss of currency valuation.

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