Economics • Banking & FinanceHard
What is the primary objective of introducing 'Targeted Long-Term Repo Operations' (TLTRO) by the central bank during periods of market stress?
A. To provide banks with cheap, long-term funds on the explicit condition that they deploy the liquidity into specific stressed corporate bonds and sector-specific debt instruments✓ Correct Answer
B. To purchase gold reserves directly from commercial mining corporations to back domestic fiat currency issuance
C. To finance foreign trade deficits by issuing sovereign bonds denominated in foreign convertible currencies
D. To subsidize interest payments on microfinance loans disbursed by cooperative credit societies
💡 Solution & Explanation
Targeted long-term repo operations represent unconventional monetary policy instruments where the central bank provides three-year loans to commercial banks at the repo rate, requiring banks to invest the funds in specific corporate bonds, commercial paper, and debentures issued by entities in stressed sectors. This ensures liquidity transmission to specific productive segments of the economy rather than remaining parked in risk-free government securities. It helps maintain financial stability and credit flow during severe economic disruptions.
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