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0 The Reserve Bank of India (RBI) introduced targeted long-term repo operations (TLTROs) and liquidity infusion measures as a proactive response to economic challenges, particularly during the COVID-19 pandemic. These initiatives aimed to provide much-needed liquidity to financial institutions and ensure credit flow to vital sectors of the economy.
What Are TLTROs?
Targeted long-term repo operations are a monetary policy technique of infusing liquidity within the financial system. Within this arrangement, the Reserve Bank lends money to banks at an administratively fixed repo rate for an extended tenure which may extend up to three years, but it specifically assigns these funds for defined purposes such as lending to defined sectors or buying corporate bonds ensuring that the liquidity so provided goes directly to where its application will be most productive.
Key Objectives of TLTROs
- Ease Liquidity Constraints: TLTROs were designed to alleviate liquidity shortages in the banking and corporate sectors.
- Support Credit Growth: The measure encouraged banks to channel funds toward productive sectors like micro, small, and medium enterprises (MSMEs) and non-banking financial companies (NBFCs).
- Stabilize Financial Markets: By encouraging the purchase of investment-grade corporate bonds and other instruments, TLTROs helped stabilize market sentiment.
RBI’s Liquidity Infusion Measures
In addition to TLTROs, the RBI undertook several liquidity infusion measures, including:
- Reduction in the Cash Reserve Ratio (CRR): Lowering CRR provided banks with additional funds to lend.
- Open Market Operations (OMOs): RBI used OMOs for the purchase of government securities, which provided liquidity in the economy. – Special Liquidity Facilities: The RBI provided special liquidity windows for critical sectors such as mutual funds, housing finance companies, and MSMEs.
These measures collectively eased financial stress, ensured the availability of credit to businesses, and boosted investor confidence. By directing liquidity to targeted sectors, the RBI minimized risks of financial instability while supporting economic recovery.
The TLTROs and liquidity infusion measures exemplify the RBI’s adaptive policy framework, showcasing its commitment to stabilizing the financial system during unprecedented crises. These efforts laid the groundwork for a resilient and inclusive economic revival.
[…] through never-before-seen COVID-19 challenges. During his leadership, the RBI came forward with TLTROs and liquidity infusion measures besides loans and advances moratorium measures to alleviate businesses and other […]