The Influence of Exchange Rate, International Interest Rate and Inflation Rate on Lending and Deposit Rate of Indonesia Banking Sector Through Reference Policy Rate as Intervening Variable 
Dennij Mandeij1, Vekie A. Rumate2, Wensy F.I Rompas3
1Dennij Mandeij, Lecturer, Department of Economics and Business, Sam Ratulangi University, Manado, Indonesia.
2Vekie A. Rumate, Lecturer, Department of Economics and Business, Sam Ratulangi University, Manado, Indonesia.
3Wensy F.I Rompas, Lecturer, Department of Economics and Business, Sam Ratulangi University, Manado, Indonesia.
Manuscript received on 01 September 2019 | Revised Manuscript received on 10 September 2019 | Manuscript Published on 23 September 2019 | PP: 204-213 | Volume-8 Issue-5C, May 2019 | Retrieval Number: E10300585C19/19©BEIESP | DOI: 10.35940/ijeat.E1030.0585C19
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: The determination of bank interest rates that consist of lending rate and deposit rate is a crucial decision for the bank business as a financial intermediary. The banks must take into account the underlying factors that influencing their interest rate determination. This research examines the influence of foreign factors and domestic factor on lending and deposit rate through a reference policy rate called BI 7-day (reverse) repo rate as an intervening variables. Foreign factors are represented by exchange rate Rupiah against USD and international interest rate called Singapore Interbank Offer Rate (SIBOR). Domestic factor is represented by inflation rate. BI 7-day (reverse) repo rate is determined by Bank Indonesia as a new reference rate for the banks to determine their lending and deposit rate. It must be noticed carefully by the banks because it shows the direction of monetary policy from Bank Indonesia to stabilize economy, especially inflation. Model of path analysis is applied to estimate the monthly series data from September 2016 to December 2018. The result shows that the exchange rate has a positive and significant influence on BI 7-day (reverse) repo rate. Inflation rate and SIBOR has negative and insignificant influence on BI 7-day (reverse) repo rate. Both lending rate and deposit rate are influenced positively and significantly by BI 7-day (reverse) repo rate but the influence on lending rate is stronger than on deposit rate. Simultaneously, all foreign and domestic factors influence significantly on lending rate and deposit rate. It can be concluded that BI 7-day (reverse) repo rate as a new reference policy rate has been transmitted well to the banking sector in the form of determination of lending and deposit rate.
Keywords: BI 7-Day (Reverse) Repo Rate, Exchange Rate, Inflation Rate, Interest Rate, SIBOR.
Scope of the Article: Social Sciences