THE IMPACT OF INTEREST RATES AND EXCHANGE RATES ON THE INDONESIA COMPOSITE STOCK PRICE INDEX: THE MEDIATING ROLE OF INFLATION DURING 2016–2024

Muhammad Farhan Robbani; Nitri Mirosea; Andriyansyah Andriyansyah

doi:10.31539/7pxkqg50

Authors

Muhammad Farhan Robbani Universitas Terbuka
Nitri Mirosea Universitas Terbuka
Andriyansyah Andriyansyah Universitas Terbuka

DOI:

https://doi.org/10.31539/7pxkqg50

Keywords:

Interest rate, Exchange rate, Inflation, IHSG, Mediation analysis

Abstract

This study aims to analyze the effect of interest rates and exchange rates on the Indonesia Composite Stock Price Index (IHSG) with inflation as a mediating variable during the period 2016–2024. The study employs a quantitative approach using monthly time-series data obtained from Bank Indonesia (BI), the Central Statistics Agency (BPS), and the Indonesia Stock Exchange (IDX). The variables consist of the BI 7-Day Reverse Repo Rate as a proxy for interest rates, the Rupiah exchange rate against the United States Dollar (USD), inflation measured by the Consumer Price Index (CPI), and IHSG as the dependent variable. The data were analyzed using multiple linear regression and path analysis. Prior to estimation, stationarity tests using the Augmented Dickey-Fuller (ADF) test were conducted, and all variables were found to be stationary at first difference (I(1)). The results show that interest rates have a positive and significant effect on inflation, while exchange rates do not significantly affect inflation. Furthermore, inflation and interest rates do not significantly affect IHSG, whereas exchange rates have a negative and significant effect on IHSG. The mediation test indicates that inflation does not mediate the relationship between interest rates and exchange rates on IHSG. The findings suggest that exchange rate stability is the most dominant macroeconomic factor influencing stock market performance in Indonesia. These results provide important implications for monetary po;icy authorities and investors in managing macroeconomic risks in financial markets.

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