LONG TERM REPO OPERATIONS (LTRO)

Aug. 1, 2020

According to RBI, LTRO operations initiated in February 2020 has created surplus liquidity in the system which has helped to reduce financing cost in the corporate bond market.

About:

What is LTRO? Under LTRO, RBI will conduct term repos of one-year and three-year tenors of appropriate sizes for up to a total amount of Rs 1 lakh crore at the policy repo rate.
Why did RBI introduce LTRO? RBI introduced LTRO to assure banks about the availability of durable liquidity at reasonable cost relative to prevailing market conditions, and to further encourage banks to undertake maturity transformation smoothly so as to augment credit flows to productive sectors.
How will it work? It is a measure that market participants expect will bring down short-term rates and also boost investment in corporate bonds. These new measures coupled with RBI’s earlier introduced ‘Operation Twist’ are an attempt by the central bank to manage bond yields and push transmission of earlier rate cuts.

Source : Indian Express