The Effect of Inflation and Exchange Rates on the BI Rate and Their Impact on Indonesia's Economic Growth

Abstract

This study aims to analyze the influence of inflation and the USD exchange rate on the BI Rate and their impact on Indonesia's economic growth. The BI Rate, as a monetary policy instrument, plays a crucial role in maintaining economic stability and controlling inflation. This study uses a quantitative approach with multiple linear regression to analyze the influence of inflation and the exchange rate on the BI Rate, and simple linear regression to analyze the impact of the BI Rate on economic growth. The data used are secondary data obtained from the Central Statistics Agency (BPS) and Bank Indonesia (BI) for 15 years, from 2011 to 2025, on a quarterly basis. The results show that inflation has a positive and significant effect on the BI Rate, while the exchange rate has no effect. Simultaneously, inflation and the exchange rate have a significant effect on the BI Rate. Furthermore, the BI Rate has a positive and significant effect on economic growth. These results indicate that the BI Rate acts as a variable transmitting the influence of inflation and the exchange rate on economic growth. However, the coefficient of determination indicates that other factors outside the model influence the BI Rate and economic growth. This study implies that inflation control is a key factor in BI Rate setting policy and contributes to Indonesia's economic stability and growth.