Interest Rate and Investment Nexus in Nigeria

Abstract

Since “interest rate policy is one of Nigeria's most contentious laws and has attracted the attention of several academics, it is unknown how it will affect the country's investment base. Thus, between 1981 and 2015, this study looked at how interest rates affected investment in Nigeria. The 2016 Statistical Bulletin of the Central Bank of Nigeria included secondary data that were gathered. In order to examine the data, the study calculated the Johansen Multivariate Co-integration model and the Error Correction Model (ECM). The co-integration test results indicate that there is a long-term link between investment, as measured by gross fixed capital formation (GFCFG), and the proxies for interest rates (MLR, MPR, and SAVR).” According to the “ECM conclusion, MLR and MPR have a statistically significant negative impact on investment in Nigeria. Although SAVR increases investment, this effect is not statistically significant. Additionally, according to the ECM, 40% of the disequilibrium from the previous year would be addressed in the present time. The conclusion of this study is that high interest rates discourage investment. To encourage investors to access money, it is suggested, among other things, to lower the lending and monetary policy rates to a single digit. This would result in the nation's economy growing.”