What Is Dear Money?
Dear money refers to money that is hard to obtain because of abnormally high interest rates. Dear money is often referred to as tight money because it occurs in periods when central banks are tightening monetary policy.
Understanding Dear Money
This situation can be a result of a restricted money supply, causing interest rates to be pushed up due to the forces of supply and demand. Businesses may have a tough time raising capital during a period of dear money, which severely dampens growth as it becomes too expensive to invest in technology and other capital.
Example of Dear Money
For example, if interest rates are 12 percent, and inflation is 3 percent, the real interest rate is 9 percent, meaning firms need to generate real growth of 9 percent to make it worthwhile.
In some instances, governments and central banks will implement dear money policy to cool growth in the short-term knowing the current level is unsustainable in the long-term. By doing this, policymakers hope to soften the blow when the slowdown eventuates.