Linkage of Money Growth on Banks Credit – Evidence from Indonesia

Abstract

This study explained the banks credit growth both in total and by usage for investment, working capital and consumer, related to monetary policy and bank view perspective. By using OLS method, estimate model explained that change of money growth affects positively total credit growth, investment and working capital credit. The coefficient of change of money growth is smaller than one to investment and working capital growth, ceteris paribus, where the banks reserves and discount rate are constant. The coefficient is still quite small compared to the role of banks as transmission monetary channel and the ability of banks as money multiplier. For consumer credit, there is not enough strong evidence to suggest that money growth has a positive effect on consumer credit growth. There is a negative relationship between money growth to consumer credit growth and significant at α = 10%. Therefore, because consumer credit does not have a multiplier effect on economic growth, banks expansivity in consumer credit should be restricted when Bank Indonesia implements a monetary expansion policy, and diverts greater credit disbursement to investment and working capital usages to promote economic growth.