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Effectiveness and Forecasting of Interest Rate Reversal BI 7-Day Repo Rate in Indonesia: Lower Bound on Monetary Policy?

Sanica I Gede, Nurcita I Ketut, Sukarnasih Desak Made and Mastra I Made
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Sukarnasih Desak Made: Department of Management, University of Pendidikan Nasional Denpasar, Indonesia
Mastra I Made: Department of Accountancy, University of Pendidikan Nasional Denpasar, Indonesia

Mediterranean Journal of Social Sciences, 2018, vol. 9, issue 1, 171-180

Abstract: This study aims to analyze effectivity and forecast of interest rate BI 7-Day Repo Rate as policy reference in the implementation of monetary policy. The method was used in this study contains Vector Autoregression (VAR) to estimate effectivity of BI 7-Day Repo Rate and Autoregressive Integrated Moving Average (ARIMA) to forecast of BI 7-Day Repo Rate. Period of observation in this study used time series data during 2016.4 until 2017.6. The result of this research shows that the transformation of the BI Rate to BI 7-Day Repo Rate is the right step in the monetary policy operation in the effort to reach deepening of the financial market and strengthen the interbank money market structure so that it will decrease loan interest rate and encourage credit growth. The effectiveness of the use of BI 7 Day-Repo Rate on price stability is indicated by the positive relationship between the benchmark interest rate and inflation compared to the BI Rate. The impact of BI 7-Day Repo Rate on economic growth that tends to be positive. Forecasting the use of BI 7-Day Repo Rate shows good results with declining value levels, so this will encourage deepening the financial markets.

Keywords: BI 7-Day Repo Rate; Inflation; Economic Growth; Monetary Policy (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:vrs:mjsosc:v:9:y:2018:i:1:p:171-180:n:16