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Daily Current Affairs – 2020

Topic: For Prelims and Mains

Long Term Reverse Repo Operation ( LTROs)

Why in News?

According to the Reserve Bank of India (RBI), the response to the Long Term Reverse Repo Operation (LTROs) has been highly encouraging.

Key Points:

  • Long Term Reverse Repo Operation (LTRO) is a mechanism to facilitate the transmission of monetary policyactions and the flow of credit to the economy. This helps in injecting liquidity in the banking system.
  • Funds through LTRO are provided at the repo rate. This means that banks can avail one year and three-year loans at the same interest rate of one day repo.
  • But usually, loans with higher maturity period (here like 1 year and 3 years) will have a higher interest rate compared to short term (repo) loans.
  • According to the RBI, the LTRO scheme will be in addition to the existing Liquidity Adjustment Facility (LAF) and the Marginal Standing Facility (MSF)
  • The LAF and MSF are the two sets of liquidity operations by the RBI with the LAF having a number of tools like repo, reverse repo, term repo

Benefits of the LTROs:

  • Enhance Liquidity:It will enhance liquidity in the banking system by Rs 1 lakh crore.
  • Bring down the cost of funds for banks:The introduction of long-term repo operations (LTRO) will bring down the cost of funds for banks without effectively cutting deposit rates. This decision is likely to make reverse repo rate as the operative policy rate over a point of time.
  • Boost Investment:It is a measure that is expected to bring down short-term rates and also boost investment in corporate bonds.
  • Ensure banks have durable liquidity:These efforts are being carried forward with a view to assuring banks about the availability of durable liquidity at a reasonable cost relative to prevailing market conditions.
  • Ensure credit flow to productive sectors:This should encourage banks to undertake maturity transformation smoothly and seamlessly so as to augment credit flows to productive sectors.

Facts for Prelims

Shared economy:

The sharing economy, also known as collaborative consumption or peer-to-peer-based sharing, is a concept that highlights the ability of individuals to rent or borrow goods rather than buy and own them.

The ‘shared economy’ includes segments such as co-working (Awfis, We Work India), co-living (Stanza Living, OYO Life, Oxford Caps), shared mobility (Uber, Ola, Shuttl) and furniture rental (Furlenco, Rentomojo.)


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