Long-Term Repo Operations
Also called: LTRO, Targeted LTRO, TLTRO · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT
Meaning
Long-Term Repo Operations (LTRO) let banks borrow from the RBI for 1 to 3 years at the repo rate, against government securities as collateral. The RBI started them in Feb 2020. They give banks durable (long-lasting) funds and push down longer-term interest rates. Targeted LTROs (TLTROs) came in 2020, including an on-tap version that banks could use at any time. They carry a condition: the money must be used in specified or stressed sectors, such as buying corporate bonds or lending to those sectors.
Example
In 2020, a bank could borrow for 3 years at the repo rate through a TLTRO. It then had to put that money into bonds or loans of specified stressed sectors. Cheap, fixed-cost money for three years let it lend to those sectors at lower rates.
Don't confuse with
- LAF repo: the regular repo under the Liquidity Adjustment Facility, which runs overnight, for 7 days or for 14 days, to manage day-to-day liquidity. LTRO lasts 1 to 3 years and provides durable funds.
Related concepts
- Forex swap auction
- Sterilisation
- Market Stabilisation Scheme
- Incremental Cash Reserve Ratio
- Demonetisation