Zero Lower Bound

The Zero Lower Bound (ZLB) refers to a situation in economics where interest rates are at or near zero, making it difficult for central banks to stimulate the economy further. When rates are low, borrowing becomes cheap, but if they can’t go any lower, it limits the central bank's ability to encourage spending and investment. This often occurs during economic downturns, leading to stagnation, as consumers and businesses may hold off on spending, expecting better economic conditions in the future. The ZLB poses challenges for policy-makers trying to revive growth and avoid prolonged recessions.