Examining The Relationship Between Money Supply and Banking Credit on Interest Rate Fluctuation

Abstract

This study examines the relationship between money supply, banking credit, and interest rate fluctuations in Indonesia, an economy characterized by a bank-based financial system. The interaction between monetary policy, money supply, and bank credit plays a critical role in influencing interest rates, which in turn affect the broader economy. Using data from 2010 to 2024, the research applies an econometric approach based on the Autoregressive Distributed Lag (ARDL) model to analyze the short-term and long-term dynamics between these variables. The findings suggest that interest rate fluctuations are significantly influenced by bank credit, while the effects of money supply are less pronounced in the short run. The study contributes to understanding the mechanisms through which monetary policy affects the economy and offers insights for policymakers in Indonesia, particularly in maintaining monetary and financial stability.