News Excerpt
The RBI has said it will conduct on-tap Targeted Long-Term Repo Operations (TLTRO) for an amount of Rs 1 lakh crore at the policy repo rate.

Highlight
•    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.
•    RBI introduced LTRO with a view to assuring 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 and seamlessly so as to augment credit flows to productive sectors.
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.

Significance
As banks get long-term funds at lower rates, their cost of funds falls. In turn, they reduce interest rates for borrowers.

⮚    LTRO helped RBI ensure that banks reduce their marginal cost of funds-based lending rate, without reducing policy rates.
⮚    LTRO also showed the market that RBI will not only rely on revising repo rates and conducting open market operations for its monetary policy, but also use new tools to achieve its intended objectives.
Analysts have termed it as a masterstroke by RBI. Besides lowering rates in the short end of the sovereign curve, LTRO is also likely to lower corporate bond yields, deposit rates and lending rates. It is considered a step towards credit transmission, and demonstrates RBI’s intent towards supporting growth.

PEPPER IT WITH
Repo Rate, Reverse Repo Rate, CRR, SLR, MSF, LSF, OMOs, Operation Twist

PEPPER IT WITH
Repo Rate, Reverse Repo Rate, CRR, SLR, MSF, LSF, OMOs, Operation Twist