ZIRP stands for “zero interest rate policy.”
It is a monetary policy approach used by central banks to stimulate economic growth by setting the target interest rate at or near zero percent. ZIRP is typically used when the economy is facing deflationary pressures or a severe downturn and traditional monetary policy tools, such as cutting interest rates, are no longer effective.
By reducing borrowing costs for businesses and households, ZIRP is intended to encourage borrowing, investment, and spending and to stimulate economic activity. However, ZIRP can also have unintended consequences, such as asset price inflation, reduced bank profitability, and higher risks of financial instability.