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Yes, it’s possible to have a negative interest rate. Learn when it can occur and what it might mean for people who have borrowed money.
A negative interest rate is interest paid to borrowers, rather than them being charged interest. While uncommon, negative interest rates can crop up when central banks continually cut interest rates as a way to stimulate the economy. Once rates are cut to the nominal zero bound or the lowest level that interest can fall, the next step after that is a negative interest rate. This usually happens as a result of a major economic scenario such as a deep recession.
As such, negative interest rates are often taken as an indicator that a country’s economy is slowing down or in negative growth. Some countries that have experienced negative interest rates include Japan and Switzerland.
Example: “The Bank of Japan went to a negative interest rate in 2016.”
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