Domestic Interest Rate and Capital Inflows Policy in Nigeria

This study investigates the effect of interest rate on economic growth in Nigeria using annual data spanning the period of 1970–2016. Specifically, the study analyzes the effect of regulated and deregulated interest rates on economic growth in Nigeria. The study employs Ordinary Least Square (OLS) techniques to achieve the objectives. The regression models employed for analysis are specified and categorized to capture: the regulated interest rate regime (1970 – 1986); the deregulated interest rate regime (1987 – 2016) and the full period of study (1970 – 2016).The study reveals that: there is a negative and significant relationship between regulated interest rate and economic growth in Nigeria; there is a negative and significant relationship between deregulated interest rate and economic growth in Nigeria; there is a negative and significant relationship between interest rate and economic growth in Nigeria. The policy implications are easily discernible: high interest rate is detrimental to economic growth in Nigeria; interest rate can be used as a policy variable by the monetary authorities to control the flow of credit and also influence economic growth in Nigeria. Therefore, irrespective of the kind of regime, the management of the interest rate in Nigeria calls for high level discretion on the part of monetary authorities if macroeconomic goals are to be achieved. Thus, the study recommends that: interest rate should be closely monitored, stabilized and effectively managed. Monetary authorities should endeavour to maintain the interest rate at a single digit and at minimal levels to encourage investment and foster output growth.

The sensitive role played by domestic interest rate in the economy has made studies on its determinants paramount. This study therefore used the autoregressive distributed lag (ARDL) bounds framework to investigate the impact of financial openness on domestic interest rate in Nigeria over the period from 1980–2020. The study included three de facto financial openness measures, namely: foreign direct investment (FDI) inflows, FDI outflows and portfolio investment as well as one de jure financial openness measure, namely: capital account openness. The short-run results revealed that while FDI inflows had a negative but non-significant impact on domestic interest rate, the impact of FDI outflows was positive and significant. The short-run results also indicated that while foreign portfolio investment had a positive but non-significant impact on domestic interest rate, the impact of capital account openness was positive and significant. In the long-run, the study revealed that FDI inflows had a negative but non-significant impact on domestic interest rate. In another vein, while FDI outflows was found to impact on domestic interest rate positively, the impact of capital account openness was also found to be positive. The study therefore concludes that domestic interest rate in Nigeria was influenced positively by both FDI outflows and capital account openness in the two time horizons and this has implications for monetary policy setting. Based on these findings, the study recommends that apart from the traditional policies used in the control of domestic interest rate, monetary authorities in Nigeria should also regulate capital outflows in their quest to direct interest rate to a desired direction.

This study examined fiscal policy and macroeconomic policy dynamics in Nigeria. The study specifically assessed whether there is a long run and short run causal relationship running from fiscal policy instruments such as government revenue, government expenditure and debt to macroeconomic variables such as interest rate and GDP in Nigeria. The data for the study were source from the CBN statistical bulletin for the period 1980 to 2016. The exploratory design was combined with the ex-post facto research design; the data collection method was desk survey. The study used the Vector Error Correction Mechanism (VECM) for data analysis. Findings from the analyses showed that there is no long run and short run causality running from fiscal policy instruments such as government revenue, government expenditure and debt to interest rate in Nigeria. The study also showed that there is no long run and short run causality running from fiscal policy instruments such as government revenue, government expenditure and debt to GDP in Nigeria. The study on the basis of these findings recommends that Fiscal policy should be tailored towards sustaining economic growth and development; in view of this government avoid further borrowings as this may increase the debt servicing burden and result in a negativity effect on growth in the long run and lastly that fiscal policy should be used to complement monetary policy effects as if used alone may not achieve the desired target for interest rate in Nigeria. Keywords: Government Expenditure, Government Revenue, Government Debt, Fiscal Policy, Interest rate, Inflation rate, Economic growth

The aim of this study is to empirically investigate the determinants of interest rate in Nigeria. The treasury bill (TRb) was used as a proxy for interest rate. Other variables used for the study are the real gross domestic product (RGDP), money supply (Ms), and the rate of inflation (Inf). The data were all sourced from the Central Bank of Nigeria statistical bulletin. The Augmented Dickey Fuller unit root test was used to ascertain whether or not the dataset are stationary while the Pearson correlation matrix was used to test the degree of association between the dependent and independent or explanatory variables in the specified model. Findings from the study show that there is strong negative relationship between money supply and interest rate. The real gross domestic product has inverse or negative relationship with the rate of interest which is in consonance with apriori expectation. The coefficient of inflation indicates weak positive correlation between inflation and interest rate which is at variance with economic theory. The outcome however, was attributed to the global market for capital in which the interest rate is determined via the interaction between global investment demand and desired savings. Based on the findings, the following conclusions were made; The money supply especially the (M2) components are a veritable tool that can be used in tinkering the interest rate geared towards achieving targeted macroeconomic objectives; There should be proper cohesion in the use of monetary and fiscal policy in directing the interest rate to ensure that it positively boost the country’s real gross domestic product; other trade policies such the exchange rate policy should be monitored to ensure that it captures external factors that can potentially affect the domestic interest rate.

<p><span lang="EN-US" style="font-size: 14pt; font-family: 'times new roman', times, serif;">The sensitive nature of interest rate has spurred empirical interests on the factors that determine it. This paper examined the joint impact of exchange rate and foreign direct investment inflows on interest rate in Nigeria over the period from 1981-2022. The study made use of the auto regressive distributed lag (ARDL) bounds test and results of findings reveal that in both the short-run and the long-run the impact of the interaction between FDI inflows and exchange rate on real interest rate was negative and significant. Also, while credit to the private sector was found to have significant positive impact on real interest rate in both the time horizons, the impact of consumer price index was negative only in the short. Oil revenue was found to impact positively on real interest rate only in the long-run, but the impact of broad money supply was negative and significant in both the short-run and the long-run. The study suggests that policies to regulate domestic interest rate should focus on joint regulation of both exchange rate and FDI inflows and this requires a synergy between monetary and fiscal policies.</span></p>

The study investigated the implication of monetary policy rate on the exchange rate and interest rate in Nigeria, 1981-2017. Because of the above-stated problems, the specific objectives are to: Investigate the effect of monetary policy rate on the exchange rate in Nigeria, determine the effect of the monetary policy rate on interest rate in Nigeria. The analysis of error correction and autoregressive lags fully covers both long-run and short-run relationships of the variable under study. The statistical tool of analysis employed in the study is Autoregressive Distributed Lags (ARDL) and Philips Peron method of stationary testing and structural breakpoint unit root test., these methods were employed to check the stationarity and breakpoint analysis of the time series data employed in this study. The study observed that monetary policy rate has a positive and significant effect on the exchange rate in Nigeria. It was also observed that the monetary policy rate has a positive and significant effect on the interest rate in Nigeria. Overall, our results indicated that the impact of monetary policy on the exchange rate was significant. There was a positive and significant relationship between monetary policy variables and exchange rate. The conclusion that is drawn from our results is that monetary policy remains an effective and potent tool for ensuring a stable exchange rate in Nigeria. The study recommended that monetary policy should be used to create a favourable investment environment by facilitating the emergence of market-based interest rate and exchange rate regimes which could attract domestic and foreign investments. Second; the Central bank of Nigeria (CBN) need to avoid ordination and balance between monetary and fiscal policies to ensure the smooth realization of monetary policy goals. Policy inconsistency or summersault to determine its policy impact before contemplating a change. Finally, there should be a coo.

This paper investigates the empirical relationship between naira/US dollar exchange rate, inflation and interest rate in Nigeria. The study uses annual time series data from 1970-2017. Augmented Dickey-Fuller unit root test, Johansen cointegration, fully modified least squares; Error correction model and Granger causality test based on Toda-Yamamoto procedure were employed in this study as methods of analysis. The results reveal that all variables are integrated of order one and hence cointegrated. The study finds inflation as having negative and significant impact on exchange rate while interest rate was found to have positive and significant impact on the foreign exchange rate in Nigeria in the long-run. The economic impacts of inflation and interest rate on the exchange rate in the short-run are found to be low, temporal and not long lasting. The ECM model has identified a moderate speed of adjustment by 50.39% for correcting disequilibrium annually for achieving long-term equilibrium steady-state position. The Granger causality test result shows statistical evidence of unidirectional causality between exchange rate and inflation and between exchange rate and interest rate in the short-run. There is also a unidirectional causality that runs from interest rates to inflation meaning that inflation is Granger caused by interest rates in Nigeria. The study recommends that lowering the lending interest rate and targeting inflation to single digit is a better exchange policy strategy for Nigeria.

This study captured the components of Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH-in-mean) framework; conditional variance (volatility), asymmetric effect and volatility persistence and interest rate in Nigeria. This is because ofthe usefulness of interest rates in measuring the financial conditions, also are major instrument of monetary policy and volatility being one of the most important concepts in finance. The study used real interest rate obtained from Central Bank of Nigeria and National Bureau of Statistic from 1970 to 2018 inclusive. The accommodating EGARCH-in-mean framework was employed in the estimation of the model. The following were found; conditional volatility is negatively and significantly related to interest rate. Also that interest rate volatility in Nigeria is not persistent. Again, there is existence of leverage effect, implying existence of asymmetric effect in the Nigerian financial market due to interest rate volatility. Consequently, the researchers suggest as follows; due to the presence of asymmetry effect, the Bankers’ Committee tightens their seat belt to forestall subsequent volatility in interest rate in Nigeria by consistently and regularly reviewing interest rate to accommodate the dynamism of the economy. Again adequate palliative measures be made available to enable investors continue with their economic activity in any business cycle in Nigeria.

Investigating the relationship between domestic interest rate and inflows from foreign direct investment (FDI) in a country is paramount for policy formulation. While a preponderance of extant literature has evaluated the impact of interest rate on the penetration of FDI owing to existing theories that support such link, studies that focus on the role of FDI inflows in influencing domestic interest rate is scanty. Dearth of studies in this area limits an understanding of the actual link between the two variables. This study therefore adds to the existing literature by verifying both theoretical and conceptual views concerning how FDI inflows and domestic interest rate are related in Nigeria. In addressing the identified gap in knowledge, the study used the vector error correction model (VECM)Granger causality with annual series which covered the period from 1981 to 2022. Finding indicates a bi-directional causality existing between domestic interest rate and FDI inflows. The paper thus concludes that much as domestic interest rate influenced FDI inflows (supporting the theoretical postulations), a reverse causality running from FDI inflows to domestic interest rate was equally revealed to exist. The study thus recommends that instead of manipulating the monetary policy instruments to attract FDI and as well handle the consequences accompanying its massive penetration, efforts should be directed at providing institutional reforms and upgrading the infrastructure in the country.

The paper estimates the impact of foreign exchange rate on economic growth of Nigeria. The study makes used of Autoregressive Distributed Lag model (ARDL) on time series Data, for the period 1981-2017. The data set on real effective exchange rate, inflation rate, money supply, lending interest rate, real GDP and foreign direct investment, oil revenue and trade openness (% of GDP) were tested for stationary using ADF and PP tests and established stationarity at I (1) for five variables and I (0) for two variables. The correlation test result shows that the highest correlation is between money supply and oil revenue while the lowest correlation is between inflation rate and foreign direct investment. The ARDL Co-integration test revealed the existence of long-run relationship among the variables. ARDL test results reveal that real effective exchange rate is negatively and significant in explaining economic growth in Nigeria in the long-run. In the short-run, the lag value of real effective exchange rate is insignificant in explaining the changes in the current rate of economic growth. in the same period, the lag value of money supply is negative and significant in explaining GDP. But in the long run it is positive and significant in explaining economic growth in Nigeria. The rate of inflation both in the short run and long run is negatively and significant in explaining GDP. The Error Correction Term value of 20.7% shows the speed of adjustment toward long-run equilibrium The findings of the study imply that interest rate in Nigeria is inflationary. Meaning that increase in the rate of interest rate will lead to an increase inflation rate. Therefore, the research study concludes that the impact of foreign exchange rate on the economic growth of Nigeria is negative and significant and that the monetary authorities should adopt flexible exchange rate in Nigeria. Keywords: ARDL, foreign exchange rate, Economic growth, monetary authorities. DOI : 10.7176/JESD/10-18-18 Publication date :September 30 th 2019

Nigeria has experienced somersault of foreign exchange policies by the Central Bank. One policy concern in recent times is to have an appropriate target of the exchange and interest rates. Therefore, this paper seeks to provide a foundation for the targeting of an appropriate exchange and interest rates for the country. Using the Johansen Cointegration and Vector Error Correction Mechanism approaches, it specifically examines the relationships among Nigeria’s weak exchange rate, its local rate of interest and world interest rate. Contrary to many studies, a control measure involving inclusion of inflation, money supply and national output in the model is done. The analysis showed an equilibrium association between exchange rate and interest rate-cum-other variables and steady rectification of deviance from long-run stability over a sequence of incomplete short-run modifications. Increase in domestic and world interest rate, inflation, money supply and GDPat equilibrium would strengthen the exchange rate. Besides, further findings showed some bidirectional causal associations among the variables. By long-run implication, the targeting of an appropriate exchange rate in Nigeria requires a tightened monetary policy that is not inflation and growth biased. However, increase in world interest rate, money supply and inflation rate must be moderate in order not to worsen the exchange rate as suggested by the short-run result.

The study analysed the relationship between government expenditure, economic growth, inflation and interest rate in Nigeria. The high inflation and interest rate with high government expenditure has been a problem for the Nigerian economy. Secondary data from 1986 to 2022 were collated from the Central Bank of Nigeria Statistical Bulletin and analyzed using multiple regression analysis. The results showed a positive relationship between inflation rate, government expenditure and Gross Domestic Product (GDP). This means that as inflation and government expenditure increased, real gross domestic product (GDP) would increase while there existed an inverse relationship between interest rate and gross domestic product (GDP), which implies that as interest rate increased, GDP would decrease. The test for the model fitness using adjusted R2 indicated the predictor values accounted for 95 per cent variations in the dependent variable (GDP). The study therefore recommended that monetary and fiscal authorities should regulate government expenditure by targeting a contractionary fiscal policy which decreases the amount of government expenditure in a bid to tackle inflationary trends. The government should aim at inflation targeting through a single-digit interest rate which could encourage the private sector to accumulate funds to be used to augment government efforts in regulating stability in the economy. Besides, even though the structural inflation facing the country did not have a very significant effect on the domestic economy concerning government expenditure and its impact on GDP, this should be resolved by dismantling all rigidities and bottlenecks such as the war against insecurities and herdsmen that have been distorting farming and agricultural output in Nigeria of late.

The research analyzed the influence of interest rate on money supply and investment in Nigeria. It specifically analyzed the influence of working capital, return on investment, earning per share and gross operating profit on interest rate in Nigeria. Data was extracted from the Annual financial report of a manufacturing company using both descriptive research method and covariance while Autoregressive Distributed Lag Model (ARDL) and Vector Error Correction Model (VECM) were used to analyze the relationship which exist among the variables. The result of the findings showed that there is cointegration which implies aa long run relationship among the variables. The result revealed that Earning Per Share (EPS) had no significant impact on interest rate manufacturing firms in Nigeria. Furthermore, the result depicted that gross operating profit has a significant and positive impact on interest rate of manufacturing firms in Nigeria. The research recommends that financial managers increase their money supply and ensure that it is properly managed in order to enhance their investment, thus strengthening firm profitability. Furthermore, we suggest that financial managers should increase investment in working capital to accelerate their productivity so that they can also improve the profitability of the firms.

This study examined the linkages between agricultural investment (comprising Foreign Direct Investment in agriculture, government investment in agriculture and private sector investment in agriculture), inflation rate and interest rate in Nigeria (1981 – 2020). Data for the study were sourced from Central Bank of Nigeria (CBN) and, Food and Agriculture Organization (FAO), and analyzed using Granger causality tests. Results showed that government investment in agriculture (p < 0.05) and private sector investment in agriculture (p < 0.1) has significant uni-directional causality to the level of agricultural foreign direct investment in Nigeria. Also there was uni-directional causality from inflation rate to interest rate (significant at 10%). It was recommended that public and private sectors’ investment in agriculture should be strategic to attract foreign investments in order to boost the productivity of agriculture in Nigeria.

Nigeria has experienced somersault of foreign exchange policies by the Central Bank. One policy concern in recent times is to have an appropriate target of the exchange and interest rates. Therefore, this paper seeks to provide a foundation for the targeting of an appropriate exchange and interest rates for the country. Using the Johansen Cointegration and Vector Error Correction Mechanism approaches, it specifically examines the relationships among Nigeria’s weak exchange rate, its local rate of interest and world interest rate. Contrary to many studies, a control measure involving inclusion of inflation, money supply and national output in the model is done. The analysis showed an equilibrium association between exchange rate and interest rate-cum-other variables and steady rectification of deviance from long-run stability over a sequence of incomplete short-run modifications. Increase in domestic and world interest rate, inflation, money supply and GDPat equilibrium would strengthen the exchange rate. Besides, further findings showed some bidirectional causal associations among the variables. By long-run implication, the targeting of an appropriate exchange rate in Nigeria requires a tightened monetary policy that is not inflation and growth biased. However, increase in world interest rate, money supply and inflation rate must be moderate in order not to worsen the exchange rate as suggested by the short-run result.