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How does a negative interest rate policy (NIRP) aim to boost lending?
Interest is not charged on loans
Consumers are paid to borrow money
By discounting the interest rate charged on loans
By penalising banks for holding surplus cash
A Negative Interest Rate Policy (NIRP) is used by central banks to stimulate economic activity by penalising banks for holding excess reserves.
How It Works:
Instead of earning interest, banks pay to keep reserves with the central bank.
To avoid losses, banks increase lending to businesses and consumers.
This increases money supply, investment, and spending, boosting economic growth.
Real-World Example: The European Central Bank (ECB) and Bank of Japan implemented NIRP to encourage lending.
???? Reference: ECB Negative Interest Rate Policy, CISI Wealth & Investment Management.
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