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LeoGlossary: Negative Interest Rate Policy (NIRP)

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Similar to: Zero Interest-Rate Policy (ZIRP)

The decision to lower the ECB’s deposit facility rate to a level below zero to counteract disinflationary forces. Like most central banks, the ECB generally acts against too high inflation by raising interest rates, making it more expensive to borrow and more attractive to save, and against too low inflation by cutting rates, making it less expensive to borrow and less attractive to save.

In June 2014, in the face of inflation likely to be persistently below its objective, the ECB cut the deposit rate to a negative level for the first time. The Governing Council always assesses the proportionality of monetary policy measures, looking at the benefits, possible side effects, the interaction of the measures and their balance over time.

This ushered in the era of negative interest rates.

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