The theoretical floor at which a central bank's nominal interest rate target cannot be reduced further, traditionally understood to be 0%, because depositors would theoretically withdraw cash rather than accept negative yields. When central banks reach the zero lower bound, they must turn to unconventional monetary policy tools such as quantitative easing, forward guidance, or yield curve control to provide additional stimulus. Some central banks, notably the European Central Bank and Bank of Japan, have breached the ZLB by implementing negative interest rates.
Example
“With rates already at the zero lower bound, the central bank announced a $120 billion per month quantitative easing programme as the only remaining tool to ease financial conditions.”