Indonesia’s bank response of interest rates to the prices of world crude oil and foreign rates of interest

Abstract

This paper focused to examine the interest-rates response specified by the Bank of Indonesia’s (BI) to the world crude oil prices and foreign rate of interest. It examined monthly data which ranged from the period of August 2004 to November 2019. The difference equation model was employed for this estimation. The test findings indicated that there was a direct response of the rate of interest specified by BI to the world crude oil price and foreign rate of interest. The rate of interest retained by BI rose (fell) by 0.124% in response to each 1% rise (decline) in the world crude oil price. Moreover, the rate of interest rose (fall) by 0.073% in response to each 1% rise (decline) in the foreign rate of interest.