Policy Papers

The depth of the crisis and the weakness of the ensuing recovery led to new ways
to implement monetary policy. At the onset of the crisis, central banks in several
advanced economies quickly moved policy rates to zero and initiated large-scale asset
purchases. In more recent years, with inflation still below target and limited support
from fiscal policy, several central banks lowered their policy rates below the previous
zero lower bound, embarking on so-called negative interest rate policies (NIRPs).<br><br>
This paper explores the implications of NIRPs for monetary policy transmission
and banks’ behavior. It considers potential differences between interest rate cuts in
positive versus negative territory on deposit and lending rates, as well as banks’ interest
rate margins and profitability, and market functioning. The paper focuses on the bank
transmission channel, where differences between positive and negative policy rates
could arise. Finally, the paper reviews cross-country experiences through case studies.