Proceedings of 7th Asia-Pacific Business Research Conference
25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0
Forecasting 2015 Indonesian Central Bank Interest
Rate
Sabila Maharani1 and Sudarso Kaderi Wiryono2
Based on Indonesia’s interest rate history from 1995 to
2013, it can be seen that there were several periods, which
shows interest rate escalation. For the example on 1998
crisis, Indonesia’s GDP tumbled fifty five percent along that,
peaking at a maximum of 70.7 percent of interest rate. It is a
pressure for individual, organizations and government,
mostly in terms of increasing cost of borrowing and also an
incentive to push inflation even higher. Interest rate is one of
government’s methods to hold up inflation in a country.
Mostly when the inflation exceeds the expectation they will
increase interest rate in order to stimulate the market to save
their money in the bank. Therefore there will be less
circulation of money that will press the level of inflation.
Increasing interest rate is slowing down the growth since
there will be less investing and consuming activity.
In order to reach proper monetary policy, the central bank
should assess good measurement of the interest rate on the
right timing. In this study, inflation and exchange rate are
used as the macroeconomic variables. In addition US Fed
Fund rate will also be added, which may influence the
decision process of Bank Indonesia to choose the interest
rate level. This study use multi linear regression in order to
determine Bank Indonesia interest rate model.
The result shows that inflation rate, exchange rate and US
fed funds rate are have positive correlations that contribute
in Bank Indonesia interest rate. From the three variables, US
fed funds rate is the most influencing variable of the Bank
Indonesia interest rate movement. Then inflation follows with
a slight difference of correlations. However, exchange rate is
not significantly affect the interest rate. Based on the result,
the equation affects 92.6 percent of Indonesian central bank
interest rate. According to the equation, there will be
increasing interest rate starting on the third quarter in 2015
because of rise of oil price assumption.
Keywords: Short-term interest
macroeconomics, forecasting.
rate,
multiple
linear
regression,
Field of Research: Economy
1
Sabila Maharani, School of Business and Management, Institut Teknologi Bandung, Indonesia
Email: sabila.maha@sbm-itb.ac.id
2
Prof.
Dr.
Sudarso
Kaderi Wiryono,
School
of
Business
and
Management,
Institut Teknologi Bandung, Indonesia, Email: sudarso_kw@sbm-itb.ac.id