Carefully consider interest rates

Oct 13, 2025 by wbrum.org 87 views

Analysis of the Effect of SBI Interest Rates, Investment, and Money Supply on Economic Growth in Indonesia

Economic growth is one of the main indicators that reflects the health of a country. In Indonesia, there are various factors that affect economic growth, including the interest rate of Bank Indonesia Certificate (SBI), investment, and the amount of money supply. This study aims to analyze the influence of the three variables on economic growth, which is measured through Gross Domestic Product (GDP). The method used in this analysis is multiple linear regression with the Ordinary Least Squares (OLS) approach, which is processed using the EViews 4 program.

Understanding the Importance of Economic Growth in Indonesia

Economic growth is a crucial aspect of a country's development, as it reflects the overall health and prosperity of the nation. In Indonesia, economic growth is measured through Gross Domestic Product (GDP), which is the total value of goods and services produced within the country's borders. A high GDP indicates a strong and growing economy, while a low GDP suggests a struggling economy. Therefore, understanding the factors that influence economic growth is essential for policymakers to make informed decisions and implement effective policies to promote economic growth.

The Role of SBI Interest Rates in Economic Growth

The interest rate of Bank Indonesia Certificate (SBI) is a critical factor that affects economic growth in Indonesia. The SBI interest rate is set by Bank Indonesia, the country's central bank, and is used as a benchmark for other interest rates in the economy. The results of this study show that each 1% increase in the SBI interest rate will cause a decrease in GDP of around Rp. 0,1396118 trillion. This suggests that higher interest rates tend to suppress economic growth because they can increase loan costs. When interest rates are high, people and entrepreneurs tend to reduce consumption and investment, which in turn will reduce aggregate demand.

The Impact of Domestic Investment on Economic Growth

Investment is another critical factor that affects economic growth in Indonesia. The results of this study show that each 1% increase in domestic investment will cause an increase in GDP of Rp. 0040767 trillion. Domestic investment contributes to increasing production capacity and creating employment, which ultimately encourages economic growth. Therefore, an increase in investment is very crucial to achieve sustainable economic growth. Domestic investment can take many forms, including investment in infrastructure, manufacturing, and services. By increasing domestic investment, policymakers can promote economic growth and reduce unemployment.

The Effect of Foreign Investment on Economic Growth

Foreign investment can also have a significant impact on economic growth in Indonesia. However, the results of this study show that an increase of 1% in foreign investment can cause a decline in GDP of Rp. 0.147795 trillion. This might indicate that the flow of foreign capital does not always have a positive impact, especially if there is no good integration with the domestic economy or if the investment is more oriented towards the exploitation of natural resources without providing significant benefits to the local community. Therefore, policymakers must carefully consider the impact of foreign investment on the domestic economy and ensure that it is aligned with the country's development goals.

The Role of Money Supply in Economic Growth

The amount of money supply (M2) is another critical factor that affects economic growth in Indonesia. The results of this study show that an increase in the money supply (M2) by 1% will increase GDP by Rp. 0.908323 trillion. This suggests that higher liquidity in the economy allows consumers and business actors to more easily transact and invest. However, it is essential to remember that an increase in the money supply must be balanced with the production of goods and services so as not to cause inflation that can harm the economy.

Conclusion

Overall, this analysis confirms the importance of attention to interest rates, investment, and money supply in an effort to encourage economic growth in Indonesia. Policies governing interest rates must be considered carefully not to burden the real sector, while investment, both domestic and foreign, must be directed to provide maximum positive impact on the economy. The amount of money supply also needs to be managed carefully so that economic growth is sustainable without inflation. Success in handling these three variables will be the key to achieving stable and sustainable economic growth in Indonesia.

Recommendations for Policymakers

Based on the findings of this study, policymakers in Indonesia can take the following recommendations to promote economic growth:

Carefully consider interest rates: Policymakers must carefully consider the impact of interest rates on the economy and ensure that they are aligned with the country's development goals.
Promote domestic investment: Policymakers must promote domestic investment by providing incentives and reducing regulatory barriers to encourage investment in infrastructure, manufacturing, and services.
Carefully consider foreign investment: Policymakers must carefully consider the impact of foreign investment on the domestic economy and ensure that it is aligned with the country's development goals.
Manage money supply carefully: Policymakers must manage the money supply carefully to ensure that it is aligned with the production of goods and services and does not cause inflation.

By following these recommendations, policymakers in Indonesia can promote economic growth and achieve sustainable development.
Frequently Asked Questions: Analysis of the Effect of SBI Interest Rates, Investment, and Money Supply on Economic Growth in Indonesia

In our previous article, we discussed the analysis of the effect of SBI interest rates, investment, and money supply on economic growth in Indonesia. In this article, we will answer some of the frequently asked questions related to this topic.

Q: What is the significance of SBI interest rates in economic growth?

A: The SBI interest rate is a critical factor that affects economic growth in Indonesia. The results of this study show that each 1% increase in the SBI interest rate will cause a decrease in GDP of around Rp. 0,1396118 trillion. This suggests that higher interest rates tend to suppress economic growth because they can increase loan costs.

Q: How does domestic investment affect economic growth?

A: Domestic investment contributes to increasing production capacity and creating employment, which ultimately encourages economic growth. The results of this study show that each 1% increase in domestic investment will cause an increase in GDP of Rp. 0040767 trillion.

Q: What is the impact of foreign investment on economic growth?

A: The results of this study show that an increase of 1% in foreign investment can cause a decline in GDP of Rp. 0.147795 trillion. This might indicate that the flow of foreign capital does not always have a positive impact, especially if there is no good integration with the domestic economy or if the investment is more oriented towards the exploitation of natural resources without providing significant benefits to the local community.

Q: How does money supply affect economic growth?

A: The amount of money supply (M2) is another critical factor that affects economic growth in Indonesia. The results of this study show that an increase in the money supply (M2) by 1% will increase GDP by Rp. 0.908323 trillion. This suggests that higher liquidity in the economy allows consumers and business actors to more easily transact and invest.

Q: What are the implications of this study for policymakers?

A: The findings of this study have significant implications for policymakers in Indonesia. They must carefully consider interest rates, investment, and money supply to promote economic growth and achieve sustainable development. Policies governing interest rates must be considered carefully not to burden the real sector, while investment, both domestic and foreign, must be directed to provide maximum positive impact on the economy.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the data used in this study is limited to the period from 2010 to 2019. Secondly, the study only considers the impact of SBI interest rates, domestic investment, and money supply on economic growth, and does not consider other factors that may affect economic growth. Finally, the study assumes a linear relationship between the independent variables and economic growth, which may not be the case in reality.

Q: What are the future research directions?

A: There are several future research directions that can be explored based on this study. Firstly, researchers can use more advanced econometric techniques, such as vector autoregression (VAR) or structural vector autoregression (SVAR), to analyze the impact of SBI interest rates, domestic investment, and money supply on economic growth. Secondly, researchers can consider other factors that may affect economic growth, such as government spending, trade, and exchange rates. Finally, researchers can use more recent data to analyze the impact of SBI interest rates, domestic investment, and money supply on economic growth in Indonesia.

Q: What are the policy implications of this study?

A: The findings of this study have significant policy implications for Indonesia. Policymakers must carefully consider interest rates, investment, and money supply to promote economic growth and achieve sustainable development. Policies governing interest rates must be considered carefully not to burden the real sector, while investment, both domestic and foreign, must be directed to provide maximum positive impact on the economy. The amount of money supply also needs to be managed carefully so that economic growth is sustainable without inflation.

By answering these frequently asked questions, we hope to provide a better understanding of the analysis of the effect of SBI interest rates, investment, and money supply on economic growth in Indonesia.