{"id":1562,"date":"2016-06-04T05:51:13","date_gmt":"2016-06-04T00:21:13","guid":{"rendered":"http:\/\/yourcareerheights.com\/?p=1562"},"modified":"2016-06-04T06:00:52","modified_gmt":"2016-06-04T00:30:52","slug":"negative-interest-rate","status":"publish","type":"post","link":"https:\/\/yourcareerheights.com\/?p=1562","title":{"rendered":"Negative Interest Rate"},"content":{"rendered":"
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What is Negative Interest Rate?<\/p>\n

DEFINITION of '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.<\/span><\/p>\n

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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.<\/p>\n

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.<\/p>\n

BREAKING DOWN 'Negative Interest Rate Policy (NIRP)'<\/h2>\n

During deflationary<\/a> periods, people and businesses hoard money instead of spending and investing. The result is a collapse in aggregate demand<\/a> which leads to prices falling even farther, a slowdown or halt in real production and output, and an increase in unemployment<\/a>. A loose or expansionary monetary policy<\/a> is usually employed to deal with such economic stagnation<\/a>. 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. (See also:\u00a0How Interest Rates Can Go Negative<\/em><\/a>.)<\/p>\n

A negative interest rate means the central bank<\/a> 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.<\/p>\n

Examples<\/h2>\n

An example of a negative interest rate policy would be to set the key rate<\/a> at \u2013 0.2%, such that bank depositors would have to pay two-tenths of a percent on their deposits<\/a> instead of receiving any sort of positive interest.<\/p>\n