A monetary policy stance where a central bank sets its target interest rate at or very near 0% to stimulate economic growth during periods of severe economic weakness or deflationary pressure. ZIRP reduces borrowing costs for businesses and consumers, encourages risk-taking, and aims to boost spending and investment. Extended periods of ZIRP can lead to asset price inflation, excessive risk-taking, and challenges for savers and financial institutions that depend on interest income.
Example
“The Federal Reserve maintained a zero interest rate policy from 2008 to 2015, holding the federal funds rate near 0% throughout the recovery from the Global Financial Crisis.”