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The Effect of Inflation and Interest Rates on Economic Growth in Indonesia

In: Proceedings of the 9th International Conference on Accounting, Management, and Economics 2024 (ICAME 2024)

Author

Listed:
  • Arianto Taliding

    (Hasanuddin University, Economics Doctoral Program Student, Postgraduate Faculty of Economics and Business
    Hasanuddin University, Faculty of Economics and Business)

  • Abdul Hamid Paddu

    (Hasanuddin University, Faculty of Economics and Business)

  • Anas Iswanto Anwar

    (Hasanuddin University, Faculty of Economics and Business)

  • Sabir Sabir

    (Hasanuddin University, Faculty of Economics and Business)

Abstract

This study aims to examine the impact of inflation and interest rates on economic growth in Indonesia. The research focuses on three key variables: inflation, the BI rate (Bank Indonesia’s benchmark interest rate), and constant Gross Regional Domestic Product (GRDP) data from 2000 to 2023. The data were analyzed using statistical tools such as SPSS and EViews to assess the relationships between these variables. The findings reveal that, simultaneously, inflation and interest rates do not have a significant effect on economic growth, as indicated by an F-probability value greater than 0.05. However, when analyzed partially, inflation demonstrates a positive and significant influence on economic growth, while interest rates exhibit a negative and significant impact. These results suggest that while inflation may stimulate economic activity under certain conditions, higher interest rates tend to hinder growth, likely by increasing borrowing costs and reducing investment. The study provides valuable insights for policymakers in Indonesia, emphasizing the need to carefully balance monetary policies to foster sustainable economic growth. By understanding the distinct effects of inflation and interest rates, stakeholders can develop more effective strategies to navigate economic challenges and promote long-term stability.

Suggested Citation

  • Arianto Taliding & Abdul Hamid Paddu & Anas Iswanto Anwar & Sabir Sabir, 2025. "The Effect of Inflation and Interest Rates on Economic Growth in Indonesia," Advances in Economics, Business and Management Research, in: Mursalim Nohong & Fitra Roman Cahaya & Phung Minh Tuan & Arifuddin Mannan & Anas Iswanto Anwar & Ria (ed.), Proceedings of the 9th International Conference on Accounting, Management, and Economics 2024 (ICAME 2024), pages 214-221, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-758-8_20
    DOI: 10.2991/978-94-6463-758-8_20
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