The Impact of Interest Rate Policy on the Rupiah to US Dollar Exchange Rate A Literature Review

الملخص

This study aims to evaluate and synthesize the impact of interest rate policy, specifically the BI 7-Day Reverse Repo Rate, on the stability of the Rupiah–US Dollar exchange rate. It seeks to resolve inconsistencies in previous empirical findings regarding the effectiveness of interest rates as a monetary stabilization tool. A Systematic Literature Review (SLR) was conducted using 10 Sinta-indexed journals published between 2020 and 2025. Data were gathered via Google Scholar using strategic keywords and filtered through rigorous inclusion and exclusion criteria. The synthesis reveals that interest rates generally have a strategic role in exchange rate stability through the interest rate differential mechanism. While some studies show significant effects in attracting capital inflows, others indicate that the impact is often secondary to external factors and political stability. Higher domestic interest rates tend to encourage Rupiah appreciation by increasing the attractiveness of domestic assets. However, the effectiveness of this policy is highly contextual and depends on fundamental economic conditions. This research provides a comprehensive up-to-date synthesis of literature from the 2020–2025 period, capturing the dynamic relationship between monetary policy and exchange rates amidst recent global economic shifts. It offers a unique perspective by integrating various empirical results into a cohesive framework that emphasizes the necessity of combining interest rate policy with broader macroeconomic strategies. Interest rate policy is an effective but not absolute instrument for managing exchange rate volatility; its success requires integration with stable fundamental economic conditions and comprehensive policy frameworks.