when strong signs of deflation are present simply cutting the central bank s interest rate to zero may not be sufficient enough to stimulate growth in both credit and lending this means that a central bank must loosen its monetary policy and turn to negative interest rates 
therefore a negative interest rate environment occurs when the nominal interest rate drops below 0 for a specific economic zone this effectively means that banks and other financial firms have to pay to keep their excess reserves stored at the central bank rather than receiving positive interest income in a negative interest rate environment an entire economic zone can be impacted as such storing cash incurs a fee rather than earning interest which means that consumers and banks have to pay interest in order to deposit money into an account special considerationswhile real interest rates can be effectively negative if inflation exceeds the nominal interest rate the nominal interest rate is theoretically bounded by zero this means that negative interest rates are often the result of a desperate and critical effort to boost economic growth through financial means the zero bound refers to the lowest level that interest rates can fall to some forms of logic dictate that zero would be the lowest level however there are instances where negative rates have been implemented during normal times for instance the target interest rate in switzerland was negative until september 2022 1 japan adopted a similar policy until march 2024 2with negative interest rates commercial banks are charged interest to keep cash with a nation s central bank rather than receiving interest this dynamic should theoretically trickle down to consumers and businesses but in reality commercial banks are generally reluctant to pass negative rates onto their customers consequences of negative ratesa negative interest rate policy nirp is an unusual monetary policy tool nominal target interest rates are set with a negative value which is below the theoretical lower bound of 0 