Trends in Policy Interest Rates and Inflation in Indonesia, 2010–2024
DOI:
https://doi.org/10.35334/29x1mr39Keywords:
Inflation, Monetary policy, Policy rate, Exchange rate, Broad moneyAbstract
Inflation in an open emerging economy is shaped by domestic liquidity, monetary-policy responses, exchange-rate movements, expectations, and supply disturbances. This study evaluates which monetary indicators contain the clearest contemporaneous information about Indonesian annual inflation over a period covering pre-pandemic conditions, extraordinary liquidity expansion, and the subsequent recovery. Consumer-price inflation, broad-money growth, the policy rate, and exchange-rate change are examined using descriptive analysis, correlations, ordinary least squares, robust inference, diagnostic testing, and leave-one-out predictive comparisons. The results indicate that policy-rate and exchange-rate movements contain substantially more contemporaneous information about inflation than broad-money growth. The positive policy-rate association is interpreted as an endogenous reaction-function signal, because the central bank tends to raise its instrument when inflationary or currency pressures are already elevated. The novelty of the study lies in separating descriptive signal ranking from causal monetary transmission in a compact and fully reported annual dataset. The findings support joint monitoring of policy rates, currency pressure, liquidity, expectations, and supply conditions, while emphasizing that structural policy effects require higher-frequency data, explicit lags, and designs that isolate unexpected policy shocks.
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Copyright (c) 2025 Lorenza Tesalonika Yahman, Rusdy Setiawan (Penulis)
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