Definition
Negative Interest Rate Policy
A negative interest rate policy charges banks for holding excess reserves at the central bank, aiming to push them to lend rather than hoard cash during weak growth or deflation.
The ECB, BoJ and Swiss National Bank pushed policy rates below zero in the 2010s to combat deflation and stimulate lending. Depositors effectively paid to park money, an unusual inversion of normal finance.
NIRP weakens a currency by making it unattractive to hold, which is one reason the yen and euro were popular funding currencies. India never adopted negative rates; the RBI's repo rate has stayed positive, reflecting India's higher inflation and growth profile.
Related terms
- Bank of Japan (BoJ)The Bank of Japan is Japan's central bank, long known for ultra-loose policy including near-zero rates and yield curve control to fight decades of deflation.
- Yield Curve ControlYield curve control is a policy where a central bank targets a specific level for longer-term bond yields, buying unlimited bonds as needed to hold the cap.
- European Central Bank (ECB)The ECB is the central bank for the eurozone, setting interest rates and monetary policy for the countries that share the euro.
- Quantitative Easing / TighteningQuantitative easing is a central bank buying bonds to inject money into the economy; quantitative tightening is the reverse, draining money by reducing those holdings.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.