Central Bank Announcements on Interest Rate Changes and Stock Prices of Indonesian Banking Industry

Abstract

This study examines the effect of the announcement of the central bank of Indonesia rates (BI-rate) increase in 2013 on stock prices of banking sector at Indonesian Stock Exchange. During the year 2013, Bank Indonesia has increased six times BI-rate. The study uses the event study framework on a total of 28 public banks. Results show that there are significant abnormal returns in the period prior to the announcement, on the announcement date, and after the announcement of the BIrate increases. It also documents significant difference of abnormal returns between before and after the event date. Overall, the announcements of interest rates increases significantly affect the banks’ stock prices.