Long Term Repo Operations(LTROs)
Part of: GS Prelims and GS-III- Economy
- 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.