THE EFFECT OF BI INTEREST RATE, EXCHANGE RATE, AND INFLATION ON THE INDONESIAN SHARIA STOCK INDEX (ISSI)

The Effect of BI Interest Rate 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.


Islamic financial institutions have experienced quite a significant development in
Indonesia as evidenced by the success of Islamic banks which are growing so rapidly, some of which immediately became Islamic commercial banks, some started as Sharia Business Units (UUS) of conventional banks which then spin off to become Islamic commercial bank. In addition to bank financial institutions, other Islamic financial institutions are also experiencing rapid developments such as insurance, pawnshops, and the capital market, including the capital market (Al Arif, 2015).
The development of the Islamic capital market is supported by the Indonesia Stock Exchange (IDX) by issuing the Indonesian Sharia Stock Index which then becomes a benchmark for the performance of the Islamic capital market in Indonesia. The purpose of the Issuance of the Indonesian Sharia Stock Index (ISSI) is to provide convenience for investors who invest in the Islamic capital market to monitor the trend of the movement of Islamic stocks in the capital market. In addition, the issuance of the Indonesian Sharia Stock Index aims to separate Islamic stocks from conventional stocks that were previously incorporated in the Composite Stock Price Index (CSPI). Thus, it is hoped that people who want to invest their capital in Islamic stocks are not in the wrong place (BE Indonesia & Kav, 2021).
Although it is still relatively new, ISSI's development is quite significant in each period. In the last five years 2015-2020, there were 445 sharia shares listed on the Indonesia Stock Exchange (IDX) with a market capitalization as follows: Research related to the effect of macroeconomic variables on the stock price index has been carried out by previous researchers, namely research conducted by (Ardana, 2016) found that interest rates have a negative effect on the Stock Price Index. These results are also the same as the research conducted by (Aulia & Latif, 2020). However, research conducted by (Princess, 2018) which states that the interest rate variable has a positive effect on ISSI, which theoretically when there is an increase or decrease in interest rates, it is a signal for investors to make decisions to invest some money in the capital market, especially ISSI.
Then, the results of research conducted by (Wahyuningrum et al., 2016), which states that the exchange rate has a significant negative effect on ISSI. However, in contrast to the research conducted by (Princess, 2018) which states that the exchange rate has a significant positive effect on ISSI. The rupiah exchange rate that experiences a strengthening or depreciation will have an impact on companies and investors. The exchange rate weakens resulting in the level of company profitability, so that it will affect the dividends that will be received by investors. It becomes a reference for investors to sell or buy shares in the capital market.
The results of research conducted by (Wahyuningrum et al., 2016) which shows that inflation has a negative and significant effect on the Indonesian Sharia Stock Index (ISSI).
If there is high inflation, it will cause a decline in the profitability of a company, so it will reduce the distribution of dividends or profits so that people's purchasing power also decreases. So, high inflation has a negative relationship with the equity market (capital  (Sunariyah, 2011). However, in contrast to Yudistira Ardana's research, which shows that inflation has no effect on the Indonesian Sharia Stock Index (ISSI) (Ardana, 2016). It is also the same as the research conducted by (Aulia & Latif, 2020) and (Saputra, 2017 Meanwhile, the research will focus on changes in the Indonesian Sharia Stock Index due to changes in macroeconomic variables such as interest rates, exchange rates, and inflation.

Indonesian Sharia Stock Index (ISSI)
The Indonesian Sharia Stock Index (ISSI) is a group of sharia shares that have been declared to meet sharia criteria and are listed on the Sharia Securities List (DES) issued by Bapepam-LK. The establishment of ISSI aims to be an indicator of the performance of the Islamic capital market in Indonesia (IDX, 2020).
The selection process for sharia shares to be included in the list of the Indonesian Sharia Stock Index (ISSI) is carried out by the Financial Services Authority through the following criteria: a) Business activities do not conflict with sharia principles; b) Interestbased debt ratio compared to total assets of less than 45%; c) Non-halal income ratio to total income less than 10%.

BI Interest Rate
The BI Interest Rate or what is popularly called the BI rate is a policy interest rate that represents Bank Indonesia's monetary policy which is then announced to the public. (Saputra et al, 2017). Bank Indonesia interest rates are also set to respond to changes in

Exchange Rate
Exchange rate is the price of a certain currency of a country which is converted into another country's currency (Paul Krugman and Obstelfld, 2016). The determination of this exchange rate is determined by the local government or monetary authority and the influence of the interacting market. This predetermined exchange rate then becomes a benchmark for international transactions, such as international trade transactions, international tourism, and international investment (Adiwarman Karim, 2008).

Inflation
According to Tndelilin, inflation defines as a condition where there is an increase in the price of products as a whole or an economic condition where the demand for goods exceeds the supply capacity of the product, resulting in a decrease in the purchasing power of money (Tndelilin, 2010). Inflation can be measured by the rate (rate of inflation) which is the percentage level of increase in several price indexes from one period to another. The measure to determine the price of a group of goods used is the Consumer Price Index (CPI) (Adiwarman Karim, 2008)

RESEARCH METHOD
The study is a quantitative study to see the relationship between variable X (BI Interest Rate, Rupiah Exchange Rate, and Inflation) to variable Y (Indonesian Sharia Stock Index). The data used in this study is secondary data for the 2015-2020 time series sourced from the official website of Bank Indonesia and the Indonesia Stock Exchange. The data technique in this study uses Error Correction Model (ECM) regression data analysis with the Eviews-9 program. The use of ECM as an econometric tool was supported by descriptive analysis methods to identify the existence of long-term and short-term relationships that occur due to cointegration between research variables.
The Error Correction Model (ECM) method was chosen because the data used in this research is in the form of time series data, so the model is considered to be able to be used to solve time series data problems in the form of non-stationary data and also linear regression. The stages of ECM testing are as follows: The above equation can be seen that in the long term the BI interest rate variable has a significant negative effect on the Indonesian Sharia Stock Index (ISSI) as evidenced by the coefficient level of -0.200247 and the probability level of 0.0088 which is less than the level of 5%. Meanwhile, the long-term exchange rate has a significant negative effect with a coefficient of -0.876361 with a probability level of 0.0030 which is less than 5%. While the inflation variable has no long-term effect on ISSI, this is evidenced by the coefficient level of 0.022460 and the probability level of 0.6029 which is more than the level of 5%.

Error Correction Model (ECM) Analysis
After performing a series of stationarity tests and cointegration tests, it can be continued with ECM testing. Variables that show cointegration mean that there is an indication of a relationship or balance between these variables in the long term. However, in the short term there is a possibility of an imbalance or what is known as disequilibrium so it is necessary to make corrections with the Error Correction Model (ECM).
Based on the results of short-term testing, the following results were obtained: The first step in the ECM model is to see the significance of the ECT coefficient of the resulting model. The value in the ECT coefficient must be negative and between 0-1.
Based on the results of the analysis carried out above, the ECT coefficient value is -0.82107 with a significant probability level of 0.0471 at 5%, the coefficient value is negative and tends to approach 1, meaning that the Error Correction Model used in this study is correct.
Based on the regression results above, the estimated regression equation can be obtained as follows: LnISSI 0.002430 0,056375LnBIrate-0,925127LNKurs-0.002251LNInflasi-0.082107   Based on the results of statistical tests that have been carried out on research variables, namely the BI rate, exchange rate, and inflation on the Islamic Stock Index in Indonesia (ISSI), the relationship between research variables can be explained as follows:

The Influence of BI Interest Rates on the Indonesian Sharia Stock Index (ISSI)
The calculation results show that in the long term the BI interest rate variable has a significant negative effect on the Indonesian Sharia Stock Index (ISSI) as evidenced by the coefficient level of -0.200247 and the probability level of 0.0088 which is less than the level of 5%. In the short-term period, the BI interest rate variable has no effect on the ISSI Based on the results of the research above, it can be said that during the period of observation of BI interest rates, it can affect the decision of investors to invest in shares, especially sharia shares or occur in the long term. However, when the monthly BI rate is issued or announced in a state of increasing or decreasing, it has no impact on the capital market. An increase or decrease in the BI rate is a signal for investors who invest their capital in a company, an increase in the BI rate will result in a decrease in stock prices followed by share sales, while a decrease in the BI rate can trigger an increase in share purchases, so that an increase or decrease in the BI interest rate will have an impact on the rise and fall of stock prices and stock activity in the capital market.
According to Widoatmojo, the increase in stock prices was due to investors preferring to invest their money in the capital market, rather than in banks. By looking at the declining interest rates, investors choose to switch investments, (Widioatmodjo, 2005).
Further explanation, namely, companies/ issuers that use a capital structure where the use of debt is greater than equity, if it happens the company will bear the interest expense which increases along with the increase in loan interest rates. Changes in interest rates will have an impact on financial instruments including shares.

The Effect of Exchange Rate on the Indonesian Sharia Stock Index (ISSI)
The calculation results show that in the long term and short term the exchange rate variable has a significant negative effect on the Indonesian Sharia Stock Index (ISSI). It is evidenced by the coefficient value of -0.925127 and a probability level of 0.0000 which is less than the level of 5% in the short term, and in the long term the coefficient of -0.876361 with a probability level of 0.0030 which is less than 5%. Thus, a significant negative effect indicates that in the short term a 1% decline in the exchange rate will increase the ISSI frequency by 0.925127 and 0.876361 in the long term, and vice versa.
The results of this study are in line with research conducted by Meylani Wahyuningrum, which states that the exchange rate has a significant negative effect on ISSI. A weakening or depreciating rupiah exchange rate will have an impact on import or The Effect of BI Interest Rate ….. 779 export companies, a weakening exchange rate will result in the company's profitability, so that it will affect dividends or profits that will be received by investors. It is a reference for investors to sell or buy shares in the capital market.
It can be explained that currency depreciation is a big threat for countries that are dominated by imports because the price of imported products will rise so that it will reduce the profitability of a company. When a company uses raw materials from abroad/imports, it will incur costs that are greater than before due to the weakening of the domestic currency, which will reduce the company's income. It also applies to companies that have debts in foreign currency (dollars) of course they will bear the payment obligation in the form of larger repayments. When the costs incurred are higher, it will reduce the company's income, thereby reducing profitability, thereby reducing dividends that will be received by investors, which also has an impact on falling stock prices (Ministry of Commerce, 2021).
According to (Romansyah, 2015), from the investor's point of view, if there is a depreciation of the rupiah against the dollar, it means that the prospects for the Indonesian economy are not good or gloomy. Because the depreciation of the rupiah is a sign that the fundamentals of the Indonesian economy are not strong. The condition will certainly increase the risk to investors if they want to invest in the Indonesia Stock Exchange.
Basically, investors will avoid greater risk, so investors tend to choose to sell shares and wait until the economic situation is felt to improve or choose to switch to other investments such as the money market (Romansyah, 2015).

The Effect of Inflation on the Indonesian Sharia Stock Index (ISSI)
The calculation results show that in the short and long term the inflation variable has no significant effect on the Indonesian Sharia Stock Index (ISSI), it is evidenced by the coefficient level of 0.022460 and the probability level of 0.6029 which is more than the level of 5%. When running a business, in general, every economic actor to gain profits or prospects, of course will look at economic conditions, by looking at or considering macroeconomic conditions, namely inflation. Inflation has also become something that can be used to take various steps and policies in economic activities, by the government, entrepreneurs, investors and other economic actors. For a company, when there is significant inflation, it will affect the demand for shares because, higher production costs, especially companies listed on ISSI, can reduce the company's profitability. However, the The difference is presumably due to the very low inflation rate in Indonesia during the observation period, the government's target for the inflation rate for the last 6 years is between 3 and 4%. The inflation rate that occurred in the observation period did not affect the company's profitability, so that the inflation rate did not directly affect investors' decisions to invest in shares. When monthly inflation increases or decreases, the impact on the stock market is not felt. However, if inflation continues to rise unnaturally, it will disrupt economic conditions and slowly the stock price index will surely fall. In addition, in sharia stock transactions, the contract used is a profit-sharing system, profit sharing distributed to investors is purely from the income earned by the company, so that inflation that is included in the low category does not affect the profit sharing received by investors and does not affect sharia share prices. The results of this study are in line with research conducted by Yudhistira Ardana and Regasaputra which states that inflation has no effect on the stock price index.

CONCLUSION
Based on the research results obtained, BI interest rate, exchange rate, and inflation on the Indonesian Sharia Stock Index (ISSI) 2015-2020, using the Error Correction Model (ECM), it was found that the BI interest rate variable in the long term had an influence significantly negative on the Indonesian Sharia Stock Index (ISSI), with a coefficient level of -0.200247 and a probability level of 0.0088 which is less than the level of 5%, and in the short term the BI interest rate variable has no effect on the ISSI variable, with a coefficient level of 0.056375 and a probability 0.5967 which is more than the rate of 5%. The exchange rate variable in the short and long term has a significant negative effect on the Indonesian Sharia Stock Index (ISSI), with a coefficient value of -0. 925127 and a probability level of 0.0000 which is less than the level of 5% in the short term, and in the long term the coefficient is -0.876361 with a probability level of 0.0030 which is less than 5%. The inflation variable has no effect on the Indonesian Sharia Stock Index in the short and long term, with a coefficient level of 0.022460 and a probability level of 0.6029 which is more than the level of α 5.