When the Rupiah Moves, Deposits Follow: Interest Rates, Inflation, and Exchange Rates as Drivers of Third-Party Funds
DOI:
https://doi.org/10.61656/pmar.v7i2.466Keywords:
bank deposits, third-party funds, deposit interest rate, inflation, exchange rate, commercial banksAbstract
Purpose: This study examines whether the deposit interest rate, the inflation rate, and the exchange rate jointly influence third-party funds collected by commercial banks in Surabaya, Indonesia, and which of the three variables has the dominant influence.
Method: A quantitative explanatory design was applied to annual secondary time series data for a fifteen-year period from 1993 to 2007, which covers the Asian crisis and the recovery of the banking sector. The data were analyzed with multiple linear regression using F-tests, t-tests, the coefficient of determination, and partial coefficients of determination, after tests of multicollinearity, autocorrelation, heteroskedasticity, and normality, and were complemented by robustness checks.
Findings: The three variables jointly influence third-party funds, and the model explains a large share of their variation. The deposit interest rate and the exchange rate each have a significant positive partial effect, whereas inflation has no significant effect. The exchange rate is the dominant factor, followed by the deposit interest rate, so the expectation of exchange rate dominance is supported. The diagnostic tests reveal no serious multicollinearity or heteroskedasticity, and the pattern of results is stable when heteroskedasticity and autocorrelation robust errors are used and when the crisis years are removed.
Implications: Bank managers can use deposit rates as an effective funding tool and should build exchange rate scenarios into liquidity planning. Policy makers who wish to mobilize domestic savings should treat exchange rate stability and public confidence in banks as conditions for a stable deposit base.
Originality: The study compares the relative strength of interest rate, inflation, and exchange rate in one model for an urban Indonesian banking market across the crisis period, and it shows that the deposit rate matters mainly once the exchange rate is held constant.
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