Abstract
Both developed and developing nations frequently encounter the economic challenges of inflation. Middle- and low-income developing countries generally experience higher inflation rates than their high-income developed counterparts. Interest rates influence the relationship between credit distribution and inflation. This study examines how fluctuations in bank lending affect inflation in Indonesia. Monthly data from 2016 to 2023 were analyzed using the Autoregressive Distributed Lag (ARDL) approach. The findings reveal that working capital loans significantly positively affect Indonesian inflation in both the short and long term. While investment credit shows no short-term impact on inflation, it significantly positively influences the long run. Consumptive credit exhibits a significant positive effect on inflation in the short term but a significant negative effect in the long term. The BI rate shows no short-term influence on inflation. However, it has a significantly negative impact in the long term. Based on these results, it is recommended that Bank Indonesia enhance its coordination of monetary stability, inflation control, and financial system improvements, particularly regarding interest rates. Additionally, banks acting as intermediaries should monitor the utilization of working capital, investments, and consumptive credit to help manage inflation in Indonesia.
Published Version
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