Zero Interest Rate Policy

Under a zero interest rate policy (ZIRP), the central bank pins its key rate at, or just above, zero. Money becomes almost free to borrow, aiming to encourage spending and investment. Japan pioneered it in 1999; the US Fed held rates near zero from 2008 to 2015 and again in 2020–2022.

ZIRP tends to weaken a currency and fuel carry trades that borrow it cheaply. Once at zero, central banks have to turn to other tools, like QE, forward guidance or even negative rates.