LTRO Full Form

What is the full form of LTRO?

The LTRO full form is Long Term Repo Operations. A long-term repo operations (LTRO) is a financial coverage device wherein a relevant bank (RBI) lends money to banks for one to 3 years at present-day repo quotes in trade for authorities bonds of the same or longer maturity. This enables inject liquidity into the machine at an interest fee identical to the quick-time period repo rate.

This Story also Contains

1. What is the full form of LTRO?
2. Information about LTRO
3. Features of long-term repo operations (LTRO)
4. Important of LTRO

Information about LTRO

• The long-term reverse Repo Operation (LTRO) is a tool that allows the switch of monetary policy and the glide of credit into the economic system. This enables inject liquidity into the economic zone.

• The repo rate is used to finance LTRO. This means that banks can borrow for 1-year and 3-year terms at the same overnight repo rate. However, compared to shorter-term loans (repos), loans with longer maturities (eg 1 year and 3 years) generally have higher interest rates.

• According to RBI, the LTRO plan will add to the operation of a Liquidity Adjustment Facility (LAF) and a Margin Standing Facility (MSF).

• In February 2020, the central bank held LTROS totalling 1,00,000 Crores at 1-year and 3-year repo rates.

• Run LTROS using the Core Banking Solution (E-KUBER) platform. It runs at a preset speed.

Features of long-term repo operations (LTRO)

Here are the features of LTRO:

• Maturity (duration): 1 year and 3 years

• Total Investment: Up to Rs 100,000 crores.

• Interest Rate: The current policy rate (repo rate).

• Injection method: CBS platform (E-KUBER). The work is done at a fixed rate.

• Banks must request the amount requested under the LTRO for the prevailing policy repository period. Applications below or above the discount rate will be rejected.

• If the declared amount is exceeded, it is distributed according to the proportion. However, RBI reserves the right to enter an amount slightly higher than stated due to rounding effects.

Important of LTRO

• The LTRO allowed RBI to reduce the marginal cost of the bank's fund-based lending rate while leaving the discount rate unchanged.

• LTRO also showed the market that the RBI's monetary policy will not only be based on changes in repo rates and open market operations but will also use new tools to achieve its goals.

• This will add 1 billion rupees to the liquidity of the banking system.

• The introduction of LTROS will reduce banks' cost of funds without effectively lowering deposit rates. This determination is almost certain that the reverse repo rate will be the operating discount rate over a period of time.

• The policy is expected to lower short-term interest rates and increase investment in corporate bonds as well.

• This attempt continues to reassure banks that they have lengthy-term liquidity at an inexpensive price given modern marketplace conditions.

• This should encourage banks to easily and seamlessly transition maturities to increase credit glide to the manufacturing quarter.

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