Analysis of the Impact of Monetary Policy on Exchange Rates and Foreign Exchange Reserves in Indonesia

Abstract

This article aims to analyze the impact of monetary policy on exchange rates and currencies in Indonesia using case studies. Monetary policy is chosen because it is one of the government policies that can influence currency and currency movements in the market. The results from the study show that monetary policy has a significant impact on exchange rates and currencies in Indonesia. Policies implemented by the Bank of Indonesia, such as raising reference interest rates and selling currencies on the market, can strengthen the currency exchange rate and increase the country’s foreign exchange reserves. On the contrary, policies that result in lower reference interest rates and foreign exchange purchases can weaken the rupiah exchange rate and reduce the country’s currency reserves. This research has important implications for policymakers in Indonesia in formulating the appropriate monetary policy to maintain the stability of the currency exchange rate and foreign exchange reserves of the country. In addition, this study could also serve as a reference for further research in analyzing the impact of monetary policy on foreign exchange markets in other developing countries.