Very little Australian research examines the impact of monetary policy on equity prices. This is surprising given that monetary policy is commonly believed to strongly influence security prices. To address this lack of research, six hypotheses examine announcement effects, the role of expectations, size effects, industry effects, average returns under different policy settings, and evidence of cointegration and causality between Reserve Bank target interest rates and stock prices. Overall, the results suggest that there is a strong relationship between monetary policy and equity prices. Stock prices react significantly to changes in expectations of overnight interest rates, and this reaction varies depending on a firm's size and industry. Stock prices and Reserve Bank interest rates share a strong 'cointegrating' relationship, and causality testing reveals that the market is efficient and anticipates changes in interest rates. However, consistent with previous Australian studies, no significant announcement effect is found.