Long Term Repo Operation(LTRO) – UPSC Prelims

Long Term Repo Operation (LTRO):
  • Long Term Repo Operation(LTRO) is a mechanism to facilitate the transmission of monetary policy actions and to inject liquidity into the banking system to boost credit growth.
  • Under this, the central bank 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.
  • Usually, loans with higher maturity periods (here like 1 year and 3 year) will have higher interest rates compared to short term (repo) loans.
  • The operations are being conducted on Core Banking Solution (E-KUBER) platform.
Significance of LTRO:
  • Enhance liquidity in the banking system by Rs 1 lakh crore.
  • It is expected to bring down short-term rates and also boost investment in corporate bonds.
  • Bring down the cost of funds for banks without effectively cutting deposit rates.
  • Encourage banks to push transmission of already announced interest rate cuts.

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