Title : Effect of Policy Interest Rates and Liquidity
to Banking Credit Risk in Indonesia
Autor : Sopira Qori Amalia
NIM : 1801101010040
Faculty/Department : Economics and Bussines/ Development Economics
Supervisor : Dr. Suriani, S.E., M.Si.
This study aims to analyze the effect of policy interest rates and liquidity as seen from the money supply on bank credit risk in Indonesia, in the short and long term. Analyzing the causal relationship between interest rate policies, the money supply, and bank credit risk in Indonesia. This study uses the Autoregressive Distributed lag (ARDL) model and the Granger Causality test as an analytical tool where the data used are policy interest rates, the amount of money in circulation, and total non-performing loans (NPL). Data for the period studied 2017-2022 (monthly). The results show that in the short term, interest rate policy and money supply have a negative effect on bank credit risk in Indonesia. However, in the long term, interest rate policy has a negative effect and the money supply has a positive effect on bank credit risk in Indonesia. Interest rates have a policy of a one-way relationship with bank credit risk. Meanwhile, bank credit risk has a one-way causal relationship with the money supply. This represents that policy interest rates can reduce Indonesia’s bank credit risk (NPL). Bank Indonesia as the monetary authority needs to pay attention to fluctuations in policy interest rates and mitigate excessive money supply so that credit risk does not increase.
Keywords: Policy interest rate, money supply, NPL, ARDL