Negative Interest Rate Policy (NIRP): Impacts for Australians in 2025

It’s a phrase that seems to belong in the world of economic science fiction: negative interest rates. Yet, in 2025, as global central banks confront persistent low inflation and economic uncertainty, the Negative Interest Rate Policy (NIRP) is once again a topic of heated discussion. While the Reserve Bank of Australia (RBA) has so far avoided the plunge below zero, the global tide is shifting—and Australians would be wise to understand what NIRP means, how it works, and what it could mean for households and businesses.

What Is Negative Interest Rate Policy?

Negative Interest Rate Policy refers to central banks setting their policy rates below zero. Instead of earning interest on deposits at the central bank, commercial banks pay to park their excess reserves. The logic is counterintuitive but clear: when saving is penalised, banks are nudged to lend more, businesses and consumers are encouraged to spend, and the economy (in theory) receives a much-needed jolt.

Since the European Central Bank (ECB) and Bank of Japan (BoJ) introduced negative rates in the mid-2010s, the policy has been a live experiment in monetary innovation. In 2025, with the ECB keeping its deposit facility at -0.25% and the Bank of Japan maintaining rates just below zero, the world is watching for both results and side effects.

How Could NIRP Impact Australians?

Australia has so far steered clear of negative rates, with the RBA’s cash rate at 3.10% as of May 2025. However, with global growth slowing and inflation returning to target bands, the possibility of unconventional policy tools remains on the table. Here’s what NIRP could mean for everyday Australians:

• Savers: If negative rates were introduced, returns on savings accounts and term deposits could dwindle further—potentially even resulting in fees for holding cash in the bank.

• Borrowers: Mortgage rates, business loans, and personal lending could become even cheaper. In some European countries, borrowers have seen their interest payments shrink to near-zero, or even received small rebates.

• Investors: Asset prices—shares, property, and infrastructure—could rise as investors hunt for yield, potentially fuelling further market volatility or bubbles.

• Currency Impacts: Negative rates typically weaken a nation’s currency, making exports more competitive but potentially raising the price of imports, including fuel and overseas travel.

For retirees and those relying on fixed income, the prospect of negative yields is especially concerning, as it erodes the value of nest eggs and forces riskier investment decisions.

NIRP in 2025: Global Trends and Policy Signals

In 2025, the world’s central banks remain divided on NIRP. The ECB has signalled a cautious approach, citing mixed results: while lending increased modestly, European banks’ profit margins have been squeezed, and savers remain wary. The Bank of Japan continues its negative rate stance, but inflation has yet to reach the desired 2% target, raising questions about the long-term effectiveness of the policy.

Key developments this year include:

• The Swiss National Bank finally raised rates above zero in early 2025, citing stabilised inflation, while Sweden’s Riksbank maintained a zero-bound approach.

• Major Australian banks have updated their risk models to account for the possibility of NIRP, as global volatility and trade tensions persist.

• The RBA’s most recent Financial Stability Review flagged NIRP as a “last resort,” but acknowledged it could be deployed if Australia faced a deep and prolonged downturn.

For now, the official stance remains: negative rates are not imminent. But as the global economic landscape evolves, Australian policymakers—and the public—will be watching international experiences closely.

How Should Australians Prepare?

While NIRP is still a distant scenario for Australia, it pays to be proactive. Here are some steps Australians can consider:

• Diversify savings and investments: Don’t rely solely on cash deposits for returns. Explore diversified portfolios that balance risk and reward.

• Monitor mortgage rates: Fixed-rate loans may provide certainty if rates fall further, but compare products regularly to avoid missing out on lower costs.

• Stay informed: Keep an eye on RBA statements and international policy shifts. Early awareness can help households and businesses adapt to changing financial conditions.

The bottom line: while NIRP isn’t in Australia’s immediate future, global developments in 2025 mean it’s no longer unthinkable. A little financial vigilance now can help Australians weather any policy surprises down the track.