Monetary policy (interest rates) announcements: A case study on banking and non-banking stocks in India

Abstract

This study explores the impact of the Reserve Bank of India’s (RBI) repo rate announcements on stock performance by analyzing abnormal returns (AR), average abnormal returns (AAR), and cumulative average abnormal returns (CAAR) across banking and non-banking sectors during the period from 2022 to 2025. The banking sector sample comprises twelve private sector banks and twelve public sector banks, while the non-banking segment includes twenty-three non-banking BSE SENSEX constituent companies. The study considers nine monetary policy announcements made by the RBI during this period, classified into three categories-repo rate increases, decreases, and no-change decisions-with a total of 423 observations. Using the event study methodology, expected returns were estimated over a 252-day estimation window, and a twenty-one-day event window (ten days before and ten days after the event) was applied for both AAR and CAAR calculations. The findings reveal that private banks exhibited stronger and more favourable market reactions compared to public banks and non-banking firms, reflecting asymmetric investor sentiment and varied responses to different repo rate decisions.