Long Term Repo Operations(LTROs)

  • IASbaba
  • March 11, 2020
  • 0
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Long Term Repo Operations(LTROs)

Part of: GS Prelims and GS-III- Economy

In News:

  • Repo rate is the rate at which Banks borrow from RBI. Generally, these loans are for short durations up to 2 weeks.
  • Also, loans with higher maturity period (here like 1 year and 3 year) will have higher interest rate compared to short term (repo) loans
  • The LTRO is a tool under which the RBI provides one-year to three-year money to banks at the prevailing repo rate, accepting government securities with matching or higher tenure as the collateral
  • RBI has announced injection of Rs. 1 Lakh Crore into the system through LTRO auctions.
  • Therefore, LTRO supplies Banking system with liquidity for their 1- to 3-year needs.
  • LTRO operations are also intended to prevent short-term interest rates in the market from drifting a long way away from the policy rate (i.e. repo rate)
  • The LTRO will also help bring down the yields for shorter-term securities (in the 1-3-year tenor) in the bond market.

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