<![CDATA[This study aims to assess the effectiveness of monetary policy transmission through the interest rate channel in influencing inflation in Indonesia during the period 2018–2024. The analysis employs the Vector Error Correction Model (VECM) approach, incorporating four key variables: Bank Indonesia policy rate (BI7DRR), lending rate (SBK), interbank money market rate (RPUAB), and the inflation rate. The findings reveal that, in the long run, the BI7DRR has a negative and statistically significant impact on inflation, indicating that the interest rate policy effectively contributes to maintaining price stability. Conversely, the SBK and RPUAB show no significant influence in the short run, suggesting that the transmission mechanism through the credit and interbank markets remains suboptimal. The Impulse Response Function (IRF) analysis indicates that inflation responds negatively to shocks in BI7DRR and RPUAB during the medium term, while the Variance Decomposition (VD) results show that the contribution of BI7DRR to inflation variability increases over time. Overall, the study provides evidence that interest rate–based monetary policy remains a crucial instrument for controlling inflation in Indonesia. Nevertheless, the effectiveness of transmission through the credit and interbank channels needs to be strengthened through closer coordination between monetary authorities and financial institutions, especially amid the heightened global uncertainty in the post-pandemic period.]]>
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