A negative interest rate policy is an unconventional monetary policy tool employed by Central Banks where the nominal interest rate is below zero hence the term negative. It is unconventional because instead of the depositors earning money for their deposits in Banks, the depositors are charged for their deposits in the banks. Negative interest rate do not directly impact small investors but can indirectly have effect from the spillover of banks having deposits at other big banks/central banks.
Why Negative Interest Rate Policy?
The policy of negative interest rate is employed when the central bank observes in its economy of the following :
- Low or no growth
- Hoard of money by people and business
When a Central Bank has set a negative interest rate, it means depositor will be charged for keeping their mone…