Pushing policy rates too low can lead to problems in financial markets and restrict the flow of credit at the very time central banks are trying to restore it. For these and other reasons, policy-makers are often reluctant to drop their target rate much below 25 or 50 basis points, the effective lower bound or ELB for many central banks.
Unconventional monetary policy instruments Once the ELB has been reached, monetary policy can continue to ease, but other means must be found to increase the flow of credit and to lower interest rates out the maturity spectrum. Three basic mechanisms have been identified for this purpose. 1.