What is Negative Interest Rate Policy (NIRP)?

Negative Interest Rate Policy is where interest rates are set to a negative value.

This means that when a commercial bank makes deposits to a central bank, they would have to pay interest to the central bank instead of receiving interest.

Commercial banks then choose to loan more money out rather than pay to deposit funds to a central bank and also reduce interest payments for customers to borrow money.

The reason behind introducing negative interest rates is to avoid or escape deflation by encouraging people to borrow and spend money instead of holding their funds in their savings accounts.