Negative interest rate

Via investopedia.com   Article

Negative Interest Rate Policy (NIRP)

“A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent.

During deflationary periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment. A loose or expansionary monetary policy is usually employed to deal with such economic stagnation. However, if deflationary forces are strong enough, simply cutting the central bank’s interest rate to zero may not be sufficient to stimulate borrowing and lending.

A negative interest rate means the central bank and perhaps private banks will charge negative interest: instead of receiving money on deposits, depositors must pay regularly to keep their money with the bank. This is intended to incentivize banks to lend money more freely and businesses and individuals to invest, lend, and spend money rather than pay a fee to keep it safe.”


 

Bank of Japan Announces Negative Interest Rates

“In a surprising move after a two-day monetary review meeting that ended Friday, the Bank of Japan adopted a negative interest rate policy in an attempt to revive the country’s economy. Japan is currently struggling with low inflation rates and weakness in the global economy ….

The Bank of Japan stated a cut in deposit rates that the central bank pays to commercial banks. The move is intended to move excess reserves from 0.1% to negative 0.1%. The primary objective is to encourage borrowing and drive up inflation.”

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