How does monetary policy lower the interest rate

Low interest rate policy

the procedure and all monetary policy measures of a central bank, in the euro zone of the European Central Bank (ECB), which are aimed at lowering the general interest rate level to a very low level and keeping it at this low level. By lowering interest rates, which are calculated between the central bank and the commercial bank, the central bank wants to stimulate the demand for investment loans from companies or consumer loans from households and thus positively influence the economy in an economy.

Falling or low interest rates at the ECB mean that the commercial banks will also lower the interest rates for their customers' loans and investments, which on the one hand increases the demand for loans from companies and consumers and on the other hand results in poorer interest on the investment of money saved. The result is said to be: more is invested because the profit prospects of companies are increasing, and more is consumed because investments are becoming increasingly unattractive for private households and savers and loans to finance consumer goods are cheap. The ECB and other central banks in the western industrialized countries have been pursuing a low interest rate policy since the recession of 2008. The interest rates at which the commercial banks can refinance themselves from the ECB were then successively reduced to zero percent. This is to prevent the effects of the 2009 recession and the European debt crisis, which could lead to deflation.

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.