ECB stimulus is positive for INR Bonds as bond yields are at low levels globally and many of the European bond yields are trading in negative territory while yields in emerging countries like India are still at higher levels. Global liquidity will flow into emerging countries like India where interest rate differential is in favour, however the risk aversion and economy need to stabilize.
The ECB on 12th September 2019 has announced its biggest package of rate cut and economic stimulus in three years.The ECB cuts interest rates by 10 basis point to -0.5%, and announced open-ended QE of euro 20 billion per month starting 1st November. The central bank downgraded its inflation and growth forecast, also introduced a reserve system that would exempt part of bank holdings from negative rates. President Mario Draghi has also warned governments that they needed to act quickly to revive flagging eurozone growth.
The decision by the ECB initially pushed the euro lower, but that was shortlived as euro ended the day higher by 0.5% against USD ans is currently trading at 1.1065.
