Unconventional Monetary Policy Measures and Money Markets: Estimating the Impact of Targeted Repo Operations on Asset Prices

We analyse the impact of unconventional monetary policy measures undertaken by central banks in response to COVID-19 crisis on asset prices in money markets. Using novel primary issue-level data of commercial papers (CPs) in India and a staggered difference-in-differences estimation strategy, we examine the effects of On-Tap Targeted Long-Term Repo Operations (On Tap TLTRO) on CP yields of issuers belonging to the targeted sectors. We find that the repo operations lead to a significant reduction of around 34 basis points in the borrowing costs of targeted sectors’ issuers. The findings highlight the effectiveness of interest rate and bank lending channels of transmission of unconventional monetary policy.