Zero Lower Bound (ZLB)

The theoretical floor at which a central bank's nominal interest rate target cannot be reduced further, traditionally understood to be 0%, because depositors would theoretically withdraw cash rather than accept negative yields. When central banks reach the zero lower bound, they must turn to unconventional monetary policy tools such as quantitative easing, forward guidance, or yield curve control to provide additional stimulus. Some central banks, notably the European Central Bank and Bank of Japan, have breached the ZLB by implementing negative interest rates.