A Negative Interest Rate is when a central bank sets an interest rate below zero. Instead of earning interest on deposits, depositors have to pay a fee to keep their money in the bank. The idea behind negative interest rates is to encourage borrowing and spending in order to stimulate economic growth.One of the reasons why central banks may implement negative interest rates is to combat deflation, which is a persistent decline in the general price level of goods and services. By setting negative interest rates, central banks hope to spur borrowing and spending, which in turn can drive up demand for goods and services and increase prices.
Another reason for negative interest rates is to stimulate lending and investment. By charging banks to hold their excess reserves, central banks hope to encourage banks to lend money to businesses and individuals, which can boost economic growth.Negative interest rates can also be used to weaken a currency, which can boost exports and tourism. A weaker currency makes a country's goods and services cheaper for foreigners to buy, which can boost demand and help to create jobs.Negative interest rates are not a common phenomenon, but they have been implemented by some central banks in Europe and Japan in recent years as a tool to stimulate their economies. However, negative interest rates have also raised concerns among economists, as they can have negative effects on the banking system, and can also lead to a fall in currency values and the rise of the foreign debt and inflation.
