The Impact of Monetary Policy Rates on the Prices of Indian Stocks: Emphasis on Banks’ Nifty Index in Particular.

Abstract

Abstract The study investigates the relationship between monetary policy rates and stock prices in India, with a particular focus on the Bank Nifty Index. Monetary policy plays a crucial role on shaping economic conditions, and its impact on stock prices has been a topic of interest for both researchers and market participants. The Bank Nifty index, consisting of major banking stocks, provides valuable insights into the financial sector’s performance. The study employs a comprehensive dataset covering relevant monetary policy rates, such as the repo rate, reverse repo rate, cash reserve ratio, statutory liquidity ratio, marginal standing facility and bank rate, alongside historical Bank Nifty index data. Statistical and econometric methods are utilized to Analyze the data and ascertain potential casual links and correlations between monetary policy changes and stock price movements. The findings contribute to a deeper understanding of the dynamic interactions between monetary policy and stock market behaviour, particularly within the banking sector. Additionally, insights derived from this research can aid investors, policymakers and financial institutions in making informed decisions, managing risks and optimizing portfolio strategies. JEL Classification: E52; E58; E60; G10; G210.