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

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.