The Influence of Inflation, Interest Rates, and Exchange Rates on the Composite Stock Price Index (IHSG) in Indonesia

English

Abstract

IHSG is a parameter that describes the fluctuation of the overall nominal share on the stock
exchange. Understanding the aspects that influence the IHSG is important for investors,
market players and economic decision makers. In this article, we collect historical data
about IHSG, interest rates, inflation, and exchange rates from a certain period. The
analytical method used is linear regression with a time series approach. We analyze the
relationship between the variables of interest rates, exchange rates, and inflation on the
movement of the IHSG. The results of our research show that there is a significant
influence between interest rates, exchange rates, and inflation on the IHSG movement.
High inflation tends to have a negative impact on the IHSG, because inflation reduces
people's purchasing power and reduces company profits. Low interest rates tend to have a
positive effect on the IHSG, because low interest rates encourage investors to allocate funds
to risky investment instruments, such as stocks. Apart from that, a strengthening exchange
rate also has a positive impact on IHSG movements, because a stable exchange rate
increases the confidence of foreign investors to invest in the Indonesian stock market.
These findings provide important insights for investors and decision makers in managing
their investment strategy. Knowing the relationship between inflation, interest rates and the
exchange rate with the IHSG can help investors understand the risks and opportunities
associated with investing in stocks. In addition, this research can also be used as a basis for
the government and financial authorities in setting regulations that affect the capital market.