The Effect of BI Interest Rate, Exchange Rate, and Inflation on The Indonesian Sharia Stock Index (ISSI)

Abstract

The development of the capital market has experienced quite good growth in Indonesia, including the Islamic capital market. The existence of a sharia capital market with various investment instruments such as sharia shares, sukuk, and sharia mutual funds provides investment opportunities for those who wish to invest with sharia principles. The development of sharia investment instruments, especially sharia shares, continues to show improvement. It is then supported by the Indonesia Stock Exchange (IDX) by issuing the Indonesian Sharia Stock Index (ISSI) which is a benchmark for the performance of sharia shares in Indonesia. The development of the Sharia Stock Index has continued to increase since it was published although it experienced fluctuations in several periods. It is presumably due to changes in macroeconomic variables. Therefore, the study aims to analyze the effect of the BI interest rate variable, exchange rate, and inflation on the Indonesian Sharia Stock Index (ISSI) for the period 2015 to 2020. The study uses quantitative methods, with data analysis The Error Correction Model (ECM) uses the EViews version 9 application, ECM analysis to determine long-term and short-term economic phenomena from the interaction of several research variables. The results obtained show that in the long term, the exchange rate and BI interest rate variables have an influence on the Indonesian Sharia Stock Index (ISSI) while in the short term the exchange rate variable has an influence on the Indonesian Sharia Stock Index (ISSI). Whereas, the inflation variable has no effect on the Indonesian Sharia Stock Index (ISSI) in the long and short term.

Aspects influencing the foreign exchange reserves of Indonesia

“…Interest rates represent the cost associated with borrowing or using investment capital. The interest rate serves as a determinant in assessing an individual's inclination towards investment or savings (Katmas & Indarningsih, 2022). According to interest rate theory, the domestic interest rate can be calculated by adding the foreign interest rate to the expected appreciation of the foreign currency.…”

How the fuel prices, interest rates, and exchange rate affect inflation and economic growth

“…Elevated interest rates will incentivize investors to allocate their capital to banks instead of directing them into production or industrial sectors that entail a higher degree of risk. Therefore, interest rate strategies can be utilized to regulate the inflation rate (Katmas & Indarningsih, 2022). When investors opt to deposit their funds in banks rather than investing them in the production sector, it will impact the limited availability of commodities in specific regions (Ompusunggu et al, 2023).…”

Islamic Views and Calls to Invest According to the Al-Qur'an Surah Al-Hashr Verse 18

“…Apart from that, there are reasons for someone to invest, among others, to get the maximum profit, guarantee the future, protect profits, earn passive income, and realize the desire to achieve the goal of the hereafter (A, Zuliansyah, & Nurmalia, 2021). Someone who is going to make an investment should pay attention to the conditions that are prohibited and permissible in investing so that it is beneficial for him for the world and the hereafter, as contained in the Al-Quran, hadith, consensus, and qiyas (Katmas & Indarningsih, 2022;Syarifudin, Sidarta, & Firdiansyah, 2021). Islam strongly encourages people to invest, this is motivated by the basic teachings of the commandment to pay zakat for people who have assets that are not productive (idle assets), otherwise, productively managed assets are not subject to zakat obligations.…”