Indian Stock Market and Monetary policy, its impact on Stock returns

Dr.R.Sarvamangala; K.N.Dhakshayini

Volume : VI, Issue : VII, July - 2016

Indian Stock Market and Monetary policy, its impact on Stock returns

Dr. R. Sarvamangala, K. N. Dhakshayini

Abstract :

Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. The monetary policy instruments are Cash Reserve Ratio, Statutory Liquidity Ratio, Open Market Operations, Liquidity Adjustment Facility, and Marginal Standing Facility. The main objective is to study the interrelationship between change in interest rate, inflation and stock returns. The study uses the time series data obtained from the main source i.e. official website of Indian Economy provided by Reserve Bank of India. The results shows that changes in cash reserve ratio, LAF, SLR, reverse repo rate, repo rate have some information content for the stock market that may lead to changes in the stock prices and to aggregate stock market returns.