Zero Interest Rate Policy (ZIRP)

A zero interest rate policy is a monetary policy tool used by central banks where the interest rate is set at or near 0%.

The goal of ZIRP is to stimulate economic activity by making borrowing extremely cheap, encouraging businesses and consumers to spend and invest rather than saving.

This policy is typically implemented during times of severe economic downturns or financial crises. It is used when the central bank’s usual policy tools (like reducing interest rates) have already been exhausted, and the economy is at or near the zero lower bound (ZLB). At this point, further rate cuts are not possible.

ZIRP is a powerful monetary tool for stimulating economic growth. However, it can have long-term risks such as creating asset bubbles and hurting savers, and may require additional policies to be fully effective.