JTUS, Vol. 01, No. 11 December 2023 946
JTUS, Vol. 01, No. 11 December 2023
E-ISSN: 2984-7435, P-ISSN: 2984-7427
Inflation, Interest Rates and the Amount of Money Supply, Their
Impact on Fluctuations of Rupiah Exchange Rate to the Us Dollar
During the Pandemic of Covid-19
Ida Bagus Gede Udiyana
1
, Ni Luh Rita Siptiari
2
, Ida Ayu Putu Ari Utari
3
, I Wayan Tantra
4
, Ida
Bagus Swaputra
5
, Ida Bagus Angga Brahmanta
6
1,2,4,5
Indonesian College of Management Science (STIMI) Handayani Denpasar, Indonesia
3,
Udayana University, Indonesia
6
Mahasaraswati University, Indonesia
Abstract
This study aims to determine and analyze the effect of inflation, interest rates and money supply
on fluctuations of rupiah exchange rate to the United States dollar during the pandemic of
Covid-19. The inflation variable is analyzed using purchasing power parity theory based on
differences in inflation of two countries, while the interest rate variable uses the International
Fisher Effect Theory. The money supply variable is represented by M2 or the total money in
circulation or in banks. The data used is secondary data for the period of January 2020 –
December 2022, totaling of 36 months. Multiple linear regression, t test and F test is used to
test the effect of dependent variables on independent variables simultaneously and partially,
provided by Smart PLS 4.0 Software. The results showed that partially the inflation had a positive
and insignificant effect on fluctuations of the rupiah exchange rate to the US dollar, the interest
rate had a significant negative effect on fluctuations of the rupiah exchange rate to the US
dollar, and the money supply had an insignificant negative effect on fluctuations of the rupiah
exchange rate on US dollars. Simultaneously, the variables inflation, interest rates and money
supply have a significant effect on fluctuations of the rupiah exchange rate to the US dollar.
keywords: inflation, interest rates, impact on fluctuations
INTRODUCTION
At the beginning of 2020, the world was shocked by the emergence of Corona Virus Disease
2019 or COVID-19, a new virus variant that infects the human respiratory system. This virus first
appeared in Wuhan, China at the end of 2019 with a very fast transmission intensity. Infection
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 947
cases and death rates due to Covid-19 continue to increase every day. Many people lost their jobs
due to layoffs and many companies went bankrupt due to a large-scale decline in consumer
purchasing power. This condition is the impact of government policy in breaking the chain of
Covid-19 spread. In Indonesia, the government issued social distance, lockdown and Large-Scale
Social Restrictions policies such as not activating community activities and foreign tourist visits.
Restrictions on local and foreign community activities have an impact on the national economy
and also influence the rupiah exchange rate on the foreign exchange market.
The exchange rate is the price of one country's currency to another country's currency
(PRATIWI, 2014). This means that in the transaction process between countries with different
currencies, currency units need to have convertibility. In general, currencies with strong
characteristics are more easily accepted as a means of international payment because they have
a relatively stable value and their value often strengthens to the currencies of other countries.
Strong currencies are characterized by countries with advanced industries such as the United
States dollar (US$), British pound sterling, Japanese yen, German deutsche mark (DM), Russian
ruble and Chinese Yuan.
Indonesia implements a free floating exchange rate system, meaning the exchange rate
can change at any time according to national economic conditions and the global economy. In
this case, the international payment unit used is the United States (US) dollar. The US dollar is
used as the reference currency for most developing countries. In addition, the United States is one
of Indonesia's largest trading partners, so exchange rate instability can cause economic losses
because trade is worth dollars. If there is a lot of demand for US dollars in Indonesia, the price will
become more expensive and the rupiah will weaken (depreciate) to the dollar, while if a lot of US
dollars are converted into rupiah, the rupiah will strengthen (appreciate) to the dollar.
Table 1. Exchange Rate Fluctuations, Inflation Rates, Indonesian Interest Rates and
United States and Money Supply January 2017 – December 2022
Year
Exchange Rate
Fluctuations
Inflation Rate
Interest Rates
Money
Supply
INA
Difference
INA
AS
Difference
INA
AS
Difference
2017
13.384
-
3.81
2.12
1.69
4.56
1.1
3.46
5.163.213.92
2018
14.246
6.44
3.2
2.45
0.75
4.6
1.9
2.7
5.518.336.63
2019
14.146
-0.70
3.03
1.82
1.21
5.63
2.27
3.35
5.902.205.83
2020
14.572
3.01
2.04
1.23
0.8
4.25
0.58
3.67
6.520.382.73
2021
14.312
-1.79
1.56
4.7
-3.14
3.52
0.25
3.27
7.182.313.29
2022
14.871
3.90
4.21
8.02
-3.81
4
1.67
2.33
7.963.215.96
Source: Bank Indonesia and Investing.com, data processed
Table 1 uses the middle exchange rate, namely the difference between the bid rate and the
ask rate. The above table shows that the rupiah tends to fluctuate to the US dollar with the highest
depreciation of the rupiah exchange rate in year of 2018 at 6.44%. This condition was caused by
Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida
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948 JTUS, Vol. 01, No. 11 December 2023
the Federal Reserve, the Central Bank of the United States, increasing interest rates. The increase
in interest rates by the Fed caused many investors to flock to invest in the United States so that
the rupiah exchange rate depreciated (CNBC Indonesia.com). Meanwhile, in year of 2019 the
rupiah exchange rate to the US dollar strengthened by 0.07% and in year of 2020 it experienced
another depreciation of 3.01% and the rupiah exchange rate to the US dollar appreciated by
1.79%. The depreciation of the Rupiah exchange rate to the US Dollar in 2020 began in March
2020 as the pandemic of Covid-19 spread to Indonesia and world economic conditions continued
to decline. The increasing risk of global uncertainty encourages investors to shift their investment
funds to more stable assets such as gold, developed country bonds and world currencies such as
the US Dollar. This resulted in capital outflows from emerging market countries including
Indonesia, where almost all developing country currencies also depreciated to the US Dollar
(Suara.com).
The loss of foreign investors simultaneously hampers the operations of companies in
Indonesia that depend on foreign investment. Apart from that, the company's dollar debt also
swelled because the rupiah depreciated. Thus the exchange rate has a vital role for a country's
economy so that the government strives for exchange rate stability. Bank Indonesia as the Central
Bank plays an important role in maintaining the stability of the rupiah exchange rate on the foreign
exchange market through domestic economic stability such as controlled inflation rates and
reference interest rates.
Inflation causes prices to increase continuously over a certain period of time. This condition
occurs when the level of consumer demand for a good or service increases while the level of
supply in the market remains constant, causing scarcity and an increase in the price of the good
or service. The implications of a large-scale increase in the price of goods in a country will lead to
an increase in that country's imports of various goods and services from abroad, thereby requiring
more foreign currency to pay for these transactions. As a result, demand for foreign currency in
the foreign exchange market increases. Purchasing Power Parity shows that changes in currency
exchange rates will be proportional to changes in the difference in inflation rates between the two
countries (Ramadhan, 2019).
Inflation rates in Indonesia and the United States tend to fluctuate, Indonesia's inflation rate
is lower than the United States as shown in the 2021-2022 period, namely 1.56% and 4.21%
respectively. This shows that the prices of goods and services in the United States in year of 2021
will increase more than in Indonesia by 3.14% and 3.81% in year of 2022. In 2020 inflation in
Indonesia was targeted at 3%, but experienced a decline due to the Covid-19 pandemic
(Bacamalang.com). A decrease in the inflation rate reflects a decrease in people's purchasing
power, often associated with a recession or economic downturn.
The policy carried out by the Central Bank was to reduce the interest rate (BI 7-Days Reverse
Repo Rate) in the hope that the Indonesian economy could recover soon (www.bi.go.id). It is
hoped that low interest rates will encourage people's interest in taking credit from banks, thus
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 949
increasing the amount of money circulating in society. With the hope that people's purchasing
power will increase as a first step in stimulating the movement of the country's economy.
Interest rates in Indonesia continue to fluctuate and are higher than interest rates in the
United States throughout the period January 2017 – December 2022. The highest interest rate
occurred in 2019 at 5.63% while in the following years it decreased to 4.25%, 3.52% and 4%.
Meanwhile, interest rates in the United States are lower than Indonesia with the highest interest
rate in 2019 at 2.27% and the lowest interest rate in 2021 at 0.25%. In 2020, both Indonesia and
the United States experienced a decrease in interest rates, this was done to stimulate the economy
of their countries due to the pandemic of Covid-19. Basically, high interest rates will attract foreign
investors to invest capital in Indonesia (Christiani, 2020). If foreign investors enter Indonesia, they
must convert their currency into rupiah so that the more foreign investors invest capital in
Indonesia, the greater the demand for rupiah in the foreign exchange market, thereby increasing
the rupiah exchange rate. The theory that states the relationship between interest rates and
exchange rates is the International Fisher Effect (IFE) theory. IFE explains that the exchange rate of
one currency with another currency will adjust to the difference between the interest rates of the
two countries. This theory sees that countries with high interest rates tend to have high inflation
rates so that the country's currency can depreciate and vice versa.
The next macroeconomic indicator is the money supply, which is the amount of money
circulating in an economy at a certain time. Data on the amount of money circulating in Indonesia
(M2) increases every year. The amount of money in circulation in year of 2020 was 10.47%, an
increase of 3.51% from 2019 of 6.96%. This shows that when the Covid-19 pandemic spread to
Indonesia in year of 2020, the amount of money in circulation increased due to the increase in the
government budget as a result of the high number of cases of Covid-19 sufferers. This indicates
that every increase in the number of cases will increase the health costs that must be borne by
the government. The more positive cases of Covid-19 means that more rupiah must be provided,
so that the amount of money in circulation also increases (Junaedi et al., 2021).
The stability of the rupiah exchange rate on the foreign exchange market needs to be
maintained to avoid uncertainty in the domestic economy. Research conducted by Haryadi, (2014)
found that interest rates did not have a significant effect on the rupiah exchange rate to the United
States dollar. In contrast to research Diana & Dewi, (2019) which states that interest rates have a
positive and insignificant effect, inflation and the money supply have no effect on the rupiah
exchange rate to the US dollar. Meanwhile Padmayoni & Jember, (2020) obtained results that
inflation and the amount of money in circulation had a positive and significant effect on the rupiah
exchange rate to the US dollar. Meanwhile, the results of research from (Herawati, 2021;
Wahyuningsih et al., 2018) showed that interest rates and money supply had a negative and
insignificant effect on the rupiah exchange rate to the US dollar. This shows that there is still a gap
in results between previous studies so it is necessary to re-examine the variables of inflation,
interest rates, and money supply to the rupiah exchange rate to the US dollar and to provide an
Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida
Bagus Swaputra, Ida Bagus Angga Brahmanta
950 JTUS, Vol. 01, No. 11 December 2023
overview of the conditions of fluctuations in the rupiah exchange rate during the Covid-19
pandemic, so the research This is interesting to develop by paying attention to factors such as the
inflation rate, interest rates and money supply, their influence on fluctuations in the rupiah
exchange rate to the United States dollar during the Covid-19 pandemic, partially or
simultaneously.
METHODS
Research Objects and Subjects
This research uses a type of causality research - a cause-and-effect relationship between the
independent variable and the dependent variable. The research objects used in this study are time
series data on the rupiah exchange rate to the US Dollar, as the dependent variable and the
inflation rate (X1), interest rate (X2) and money supply (X3) in Indonesia as the independent
variable, during the pandemic of Covid-19 period of January 2020 – December 2022. The research
subjects used in this research were the Central Banks of Indonesia and the Federal Reserve Bank
in America. That is Bank Indonesia on the site www.bi.go.id and The Federal Reserve on the site
id.investing.com.
Type and Data Sources
The type of data used in this research is quantitative data using secondary data sources in
the form of time series data as the data used has been processed first and published to the public.
The following data is used in this research and its sources: (a) Data on the rupiah exchange rate
to the US dollar, inflation rates and interest rates for the period January 2020 – December 2022
on the Bank Indonesia website at www.bi.go.id, (b) Data on the amount of money circulating in
Indonesia for the period January 2020 – December 2022 on the Central Statistics Agency website
at www.bps.go.id, (c) Data on the inflation rate and interest rates in the United States on the
id.investing.com website.
Table 2 Operational Definition of Variables
Variable
Operational Definition
Indicator
Scale
X
1
Inflation rate is a continuous increase in price levels,
affecting individuals, businesses and government (Meyer,
2012)
-1
(Pangestuti et al., 2022)
Ratio
X
2
The interest rate is the cost that the borrower must pay for
the loan received and is a reward for the lender the funds
(Sugiharto et al., 2018)
-1
(Prihatin et al., 2019)v
Ratio
X
3
The amount of money in circulation is all the money held
by the public, without counting the amount of money in
banks (Adhista, 2022)
M2 = M1+TD+SD
Ratio
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 951
(Ansori, 2010)
Y
The exchange rate is the amount of domestic money used
to purchase one unit of foreign currency. (Pradika &
Sukirno, 2017) in (Fortuna et al., 2021)
𝐵𝑖𝑑 𝑝𝑟𝑖𝑐𝑒 + 𝐴𝑠𝑘 𝑝𝑟𝑖𝑐𝑒
2
(Wahyuningsih et al.,
2018)
Ratio
Data Analysis Method
The data analysis method for this study uses statistical methods, data processing is assisted
by the Smart PLS 4.0 software program, including classical assumption tests consisting of
normality, multicollinearity, autocorrelation and heteroscedasticity tests. Followed by hypothesis
testing consisting of the t test, coefficient of determination and significance test (F-test) as well as
the multiple linear regression equation formulated as.
Y
i
= a
0
+ β
1
X
1
+ β
2
X
2
+β
3
X
3
+ e
i
Where:
Y = Exchange rate
a = Constant
β
1
, β
2,...,
β
n
= Regression coefficient
X
1
= Inflation
X
2
= Interest rate
X
3
= Money Supply
e = Error term
RESULTS AND DISCUSSION
Classic Assumption Test
Figure 1. Histogram
Source: output of SmartPLS 4.0.96
Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida
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952 JTUS, Vol. 01, No. 11 December 2023
Based on the histogram graphic image above, it shows that the graph is in the shape of a
bell (not leaning to the left or right). So it can be concluded that the linear regression model used
in this research has a normal distribution.
Table 3. Multicollinearity Test
Variable
VIF
Criterion
Decision
Inflation (X
1
)
1.218
< 10
There is no multicollinearity
Interest rate (X
2
)
1.107
< 10
There is no multicollinearity
Jumlah Uang Beredar (X3)
1.335
< 10
There is no multicollinearity
Source: output of SmartPLS 4.0.96
Table 3 shows the values of variance inflation factor (VIF) for inflation, interest rates and
money supply respectively 1.218, 1.107 and 1.335, which values are <10 (less than 10). These
results are in accordance with the basis for decision making for multicollinearity tests, so it can be
concluded that in the regression model there are no symptoms of multicollinearity.
Table 4. Autocorrelation Test
Autocorrelation Test
D-W test
Decision
Conclusion
Durbin-Watson test
0,314
-2 > DW > 2
There is no autocorrelation
Source: output of SmartPLS 4.0.96
Based on the results of the autocorrelation test on Table 4 using the Durbin Watson test,
the result was 0.314, so the Durbin Watson value is -2 > DW > 2 so that according to the
autocorrelation test criteria it can be concluded that there are no symptoms of autocorrelation in
the regression model of this research.
Table 5. Heteroscedasticity Test
Variable
t
p-value
Conclusion
Inflation (X
1
)
0,00
1,00
There is no heteroscedasticity
Interest Rate (X
2
)
0,00
1,00
There is no heteroscedasticity
Money Supply (X
3
)
0,00
1,00
There is no heteroscedasticity
Source: output of SmartPLS 4.0.96
Table 5 above shows that each independent variable has a p-value = 1.00 in accordance
with the heteroscedasticity test criteria, p-value > 0.05, then 1.00 > 0.05, so it can be concluded
that in the regression model there are no heteroscedasticity.
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 953
Hypothesis Testing
Table 6. Multiple Linear Regression Test
Variable
Standardized
coefficients
p-value
Conclusion
Intercept
0,000
Inflation (X
1
)
0.259
0.092
Positive insignificant
Interest Rate (X
2
)
-0.464
0.003
Negative significant
Money Supply (X
3
)
-0.179
0.262
Negative insignificant
Source: output of SmartPLS 4.0.96
Figure 2 Regression Results of SmartPLS 4.0.96
Source: output of SmartPLS 4.0.96
Based on the Table 6 above, the multiple linear regression equation is obtained as follows:
Y = 0,000 + 0,259X
1
– 0,464X
2
- 0,179X
3
+ e
i
Where:
Y = Exchange rate
a = Constant
X1 = Inflation
X2 = Interest rate
X3 = Money Supply
e = Error term
The coefficient of each of these variables can be interpreted as follows:
1) X
1
= inflation has a value of 0.259. It means that if the inflation difference between
Indonesia and the United States increases by 1%, the rupiah exchange rate to the US dollar
will increase or increase by 0.259%. This shows that inflation has a positive influence of
Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida
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954 JTUS, Vol. 01, No. 11 December 2023
0.259 or it could be said that the inflation variable has a positive influence on the rupiah
exchange rate to the US dollar.
2) X
2
= interest rate has a value of -0.464. It means that if the difference in interest rates
increases by 1%, the rupiah exchange rate to the US dollar will decrease by 0.464%. This
shows that the interest rate shows a negative influence of -0.464 or it could be said that
there is a negative relationship between the interest rate variable and the rupiah exchange
rate variable to the US dollar.
3) X
3
= money supply has a value of -0.179. It means that if the money supply increases by
1%, the rupiah exchange rate to the US dollar will decrease by 0.179%. This shows that the
money supply has a negative influence of -0179 or it could be said that there is a negative
relationship between the money supply variable and the rupiah exchange rate variable to
the US dollar.
Table 7. t test
Variable
Standardized coefficients
p-value
t-value
Intercept
0,000
0,435
0.790
Inflation (X
1
)
0.259
0.092
1.736
Interest Rate (X
2
)
-0.464
0.003
3.256
Money Supply (X
3
)
-0.179
0.262
1.142
Source: output of SmartPLS 4.0.96
1) Testing X
1
to Y
Based on table 7, the t-value for the inflation variable is 1.736 and the t-table can be
searched in the statistical table with df = n-k (n = number of samples, k = independent variable)
and a significance value of 5% = 0.025, so we get 36-3 = 33, then the t-table (0.05, 33) is 2.034.
It is known that t-value (1.736) < t-table (2.034) or t-count is smaller than t-table, and the p-
value is 0.092 so 0.092 > 0.05. So the researcher can make a decision to accept 𝐻
0
and reject
𝐻
1
. Thus it can be concluded that fluctuations in the rupiah exchange rate to the US dollar are
partially influenced by differences in inflation rates between Indonesia and the United States
but are not significant.
2) Testing X
2
to Y
Based on table 7 on the interest rate variable, the t-count is 3.256 with a p-value of 0.003.
The t-value (3.256) > t-table (2.034) and where the t-value is greater than the t-table.
Furthermore, the p-value is 0.003 < 0.05 and the coefficient value of the interest rate variable
is -464 which shows a relationship in the opposite direction or negative. So the researcher
made the decision to accept 𝐻
0
and 𝐻
1
and rejected it because the difference in interest rates
between Indonesia and the United States partially had a negative and significant effect on
fluctuations in the rupiah exchange rate to the US dollar.
3) Testing X3 to Y
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 955
Based on table 7 on the money supply variable, the t-value is 1.142 < t-table (2.034) with
p-value of 0.262 > 0.05 and the coefficient value of the money supply variable is -0.179. Then
the researcher can make a decision to accept 𝐻
0
and reject 𝐻
1
. So it can be concluded that the
money supply partially has a negative and insignificant effect on fluctuations in the rupiah
exchange rate to the US dollar.
Table 8. F Test
Variable
F-value
p-value
Conclusion
X
1
, X
2
, X
3
and Y
7,516
0,000
Significant
Source: output of SmartPLS 4.0.96
This study uses a significance level of 0.05. Where the F-table can be searched in statistical
tables with a significance of 0.05 or 5% where dfl = (Number of variables – 1) or 4 – 1 = 3, and df
2 = (n – k – 1) or 36 – 2 – 1 = 32 (n = number of samples, k = number of independent variables)
the results obtained for the F-table (0.05, 3, 32) are 2.901 and from table 8 the calculated F-value
is 7.516. So F-value > F-table is 7.516 > 2.901 where 𝐻1 is accepted and 𝐻0 is rejected. Meanwhile,
the p-value (0.000) > 0.05, so the results of this test show that differences in inflation rates, interest
rates and money supply simultaneously had a significant effect on fluctuations in the rupiah
exchange rate to the US dollar during the Covid-19 pandemic.
Table 9 Determination Coefficient Test
Variable
R Square
Criteria
Conclusion
X1, X2, X3 and Y
0.413
> 0,33
Moderate
Source: output of SmartPLS 4.0.96
Based on table 9 above, it shows that the R square value is 0.413 or 41.3%, which based on
the R square classification criteria according to Chin, (1998) is classified as moderate. This shows
that the percentage contribution of the effect of the independent variables (Inflation, interest rates
and money supply) on the dependent variable (Rupiah exchange rate to the US dollar) is 41.3%
or the variation of the independent variable on the dependent variable is able to explain 0.413%.
Meanwhile, the rest is influenced by other variables that are not included in the regression model
of this study.
The Effect of Inflation on Fluctuations in the Rupiah Exchange Rate to the US Dollar
Based on table 7, the t-value for the inflation variable is 1.736 and the t-table is 2.034. It is
known that t-value (1.736) < t-table (2.034) or t-value is smaller than t-table, and the p-value is
0.092 so 0.092 > 0.05. Meanwhile, the coefficient value for inflation shows a positive 0.259 or
shows a positive unidirectional relationship. So a decision can be made to accept 𝐻0 and reject
𝐻1. Thus, it can be concluded that fluctuations in the rupiah exchange rate to the US dollar are
Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida
Bagus Swaputra, Ida Bagus Angga Brahmanta
956 JTUS, Vol. 01, No. 11 December 2023
partially influenced by differences in inflation rates between Indonesia and the United States but
insignificant.
Based on the regression equation Y = 0.000 + 0.259X1 – 0.464X2 - 0.179X3 + ei, the result
is that the inflation variable affects the rupiah exchange rate to the US dollar by 0.259%. This
means that if the level of inflation difference between Indonesia and the United States increases
by 1%, the rupiah exchange rate to the US dollar will also increase (depreciate) by 0.259% with
other variables assumed to be constant or ceteris paribus. The high level of inflation reflects the
increase in prices of domestic goods and services so that people's purchasing power will be the
same as buying foreign goods. This condition causes demand for dollars to increase so that the
rupiah weakens to the dollar. In accordance with Purchasing Power Parity Theory, changes in
exchange rates will adjust to the magnitude of the difference in inflation rates between two
countries because international trade patterns and exchange rates will change according to
inflation in that country. This means that the higher a country's inflation rate will increase imports
by that country of various goods and services from abroad, so that more foreign currency is
needed to finance these import transactions.
During the Covid-19 pandemic, based on research results, the rupiah exchange rate
increased to the US dollar, meaning that the value of the rupiah currency decreased according to
(Diana & Dewi, 2019). This condition occurred because the US dollar was a strong currency, even
all foreign currencies weakened to dollar. The results of this study strengthen the results of
research by (Herawati, 2021; Ramadhan, (2019) which show that inflation has a positive but
insignificant effect on the rupiah exchange rate to the US Dollar. This is contrary to research by
(Pangestuti et al., 2022; Wahyuningsih et al., 2018) which obtained results that inflation had no
effect on the rupiah exchange rate to the US Dollar.
The Effect of Interest Rates on Fluctuations in the Rupiah Exchange Rate to the US Dollar
Based on table 7 the interest rate variable, the t-value is 3.256 with a p-value of 0.003. The
t- value (3.256) > t-table (2.034), where the t- value is greater than the t-table. Furthermore, the
p-value is 0.003 < 0.05 and the coefficient value of the interest rate variable is –0.464, indicating
a relationship in the opposite direction or negative. So a decision can be made to accept 𝐻0 and
reject 𝐻1. It because the difference in interest rates between Indonesia and the United States
partially has a negative and significant effect on fluctuations in the rupiah exchange rate to the
US dollar.
Based on the regression equation Y = 0.000 + 0.259X1 – 0.464X2 - 0.179X3 + e the interest
rate variable shows a negative relationship – 0.464. This means that if the difference in interest
rates between two countries increases by 1%, the rupiah exchange rate to the US dollar
(depreciates) / decreases by 0.464%.
The International Fisher Effect Theory (IFE) concept states that different interest rates
between two countries are caused by differences in estimates of a country's inflation rate. High
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 957
interest rates do not provide a guarantee that a country's currency exchange rate will strengthen.
The implication of the IFE theory is that investors cannot invest their funds in countries that have
high interest rates in the hope of getting bigger profits. However, increasing interest rates is an
effort by monetary policy to reduce the percentage of inflation in a country. From a domestic
perspective, an increase in interest rates provides an opportunity for domestic people to save their
funds in banks in rupiah. According to Ramdhan et al., (2017) changes in interest rates will cause
changes in the expected return from financial investments. The higher the interest rate in a
country, the expected return on financial investments in that country will increase and will cause
an influx of funds from abroad, which will ultimately lead to a strengthening of the domestic
currency exchange rate to foreign currencies (Noor, 2014). The results of this study are in line with
research by Herawati, 2021; Pangestuti et al., (2022) that interest rates have a negative effect on
the rupiah exchange rate to the US Dollar. However, this is contrary to research by (Diana & Dewi,
2019; Wahyuningsih et al., 2018)
Effect of Money Supply on the Rupiah Exchange Rate to the US Dollar
Based on table 7 on the money supply variable, the t-value is 1.142 < t-table (2.034) with a
p-value of 0.262 > 0.05 and the coefficient value of the money supply variable is -0.179. Then a
decision can be made to accept 𝐻0 and reject 𝐻1. So it can be concluded that the money supply
partially has a negative and insignificant effect on fluctuations in the rupiah exchange rate to the
US dollar.
Based on the regression equation Y = 0.000 + 0.259X1 – 0.464X2 - 0.179X3 + ei the money
supply variable has a negative influence - 0.179. This means that if the money supply increases by
1%, the rupiah exchange rate to the US dollar will decrease by 0.179% with other variables
assumed to be constant, ceteris paribus. However, when the Covid-19 pandemic spread to
Indonesia in 2020, the amount of money in circulation increased due to the increase in the
government budget due to the high number of cases of Covid-19 sufferers, which indicated that
every increase in the number of cases would increase the health costs that had to be borne by the
government. However, when the Covid-19 pandemic spread to Indonesia in 2020, the amount of
money in circulation increased due to the increase in the government budget as a result of the
high number of cases of Covid-19 sufferers, which indicated that every increase in the number of
cases would increase the health costs that had to be borne by the government. The more positive
cases of Covid-19 means that more rupiah must be provided, so the amount of money in
circulation also increases (Junaedi et al., 2021). So that the increasing amount of money in
circulation is not used for spending abroad but for use within the country. The results of this study
also strengthen the research results from (Diana & Dewi, 2019). These results are in contrast to
the research results of (Padmayoni & Jember, 2020; Yuliyanti, 2014). that the amount of money in
circulation has a positive effect on the exchange rate of the rupiah to the US Dollar.
Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida
Bagus Swaputra, Ida Bagus Angga Brahmanta
958 JTUS, Vol. 01, No. 11 December 2023
Effect of Inflation Rate, Interest Rate and Money Supply on the Rupiah Exchange Rate to
the US Dollar
This study uses a significance value of 0.05. Where the F-table is 2.901 and from table 8 the
F- value is 7.516. So F-value > F-table is 7.516 > 2.901 where 𝐻1 is accepted and 𝐻0 is rejected.
Meanwhile, the p-value (0.000) > 0.05, so the results of this test show that differences in inflation
rates, interest rates and money supply simultaneously had a significant effect on fluctuations in
the rupiah exchange rate to the US dollar during the Covid-19 pandemic.
Central Bank (Bank Indonesia) must be able to maintain an appropriate balance between
differences in inflation rates, interest rates and money supply towards the stability of the rupiah
exchange rate with the United States dollar. The policies taken by the Central Bank of the United
States regarding interest rates will also affect the rupiah exchange rate. Reducing the dependence
on fluctuations in the value of the United States dollar on the rupiah exchange rate can be done
by implementing a free floating exchange rate. This must be increased by careful, consistent and
sustainable implementation.
Based on the results of the coefficient of determination (R2), the R value used is adjusted R
square. Adjusted R square is an indicator used to determine the effect of adding an independent
variable to a regression equation. Shows an R square value of 0.413 or 41.3%, which based on the
R square classification criteria according to Chin, (1998) is classified as moderate. This shows that
the percentage contribution of the effect of the independent variables (Inflation, interest rates
and money supply) on the dependent variable (Rupiah exchange rate to the US dollar) is 41.3%
or the variation of the independent variable on the dependent variable is able to explain 0.413%.
Meanwhile, the remainder is influenced by other variables not included in the regression model
of this study, such as other macroeconomic factors consisting of national income, exports and
imports, foreign exchange reserves and economic growth. All of these factors must be kept in
balance to maintain the stability of the rupiah exchange rate to the United States dollar. Other
strategic factors that Central Bank (Bank Indonesia) needs to pay attention to but these are outside
its authority and power, especially those related to outside macroeconomic factors. The most
strategic thing that Indonesia needs to do is take a leap by: (1) Increasing the added value of
Indonesia's superior commodities through a downstream program carried out carefully, boldly,
consistently and sustainably, (2) Increasing the ability to master technology, (3) Increasing the
competitiveness of Indonesian human resources, (4) Prevent collusion, corruption, nepotism
effectively, efficiently and fairly.
CONCLUSION
Inflation has an insignificant positive effect on fluctuations in the Rupiah exchange rate to
the United States Dollar during the Covid-19 pandemic. Interest rates have a negative and
significant effect on fluctuations in the Rupiah exchange rate to the United States Dollar during
the Covid-19 pandemic. The amount of money in circulation has an insignificant negative effect
Inflation, Interest Rates and the Amount of Money Supply, Their Impact on Fluctuations
of Rupiah Exchange Rate to the Us Dollar During the Pandemic of Covid-19
JTUS, Vol. 01, No. 11 December 2023 959
on fluctuations in the rupiah exchange rate to the United States Dollar during the Covid-19
pandemic. Simultaneously, the variables inflation, interest rates and money supply have a
significant effect on fluctuations in the rupiah exchange rate to the US dollar during the pandemic
of Covid-19.
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Ida Bagus Gede Udiyana, Ni Luh Rita Siptiari, Ida Ayu Putu Ari Utari, I Wayan Tantra, Ida Bagus
Swaputra, Ida Bagus Angga Brahmanta (2023)
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