Interaction of Macroeconomic Variable Shocks and Monetary Policy Interventions on the Profitability of Sharia Commercial Banks in Indonesia

Background. Economic growth and financial development in Indonesia are supported by developments in the Islamic banking industry. The business continuity of Islamic banking is determined by financial performance, measured by profitability, which is thought to be influenced by macroeconomic variables and monetary policy interventions. Purpose. This study analyzes the effect of shocks in macroeconomic variables (real effective exchange rate and consumer price index), monetary policy intervention via the central bank’s benchmark BI Rate, and the capital adequacy ratio on the profitability of Islamic commercial banks in Indonesia in the short and long term. Method. Using an error-correction model (ECM), the study utilizes secondary data from January 2015 to May 2022 sourced from OJK’s Sharia Banking Statistics and FRED. Results. The real effective exchange rate and consumer price index affect profitability in the long term but are not significant in the short term. Monetary policy (BI Rate) does not have a significant effect in either the short or long term. The capital adequacy ratio significantly influences profitability in both the short and long term. Conclusion. Macroeconomic shocks can disrupt banking performance in the short term, suggesting a lack of flexible short-term management strategies, while capital adequacy management is relatively effective.