Analysis of Interest Rate Determination and Its Effect on Economic Growth in Nigeria (1990-2017)

Abstract

The study examined the analysis of interest rate determination and its effect on economic growth in Nigeria; for the period 1990-2017. Secondary data were used and sourced from Central Bank of Nigeria Statistical Bulletin. The study employed Gross Domestic Product as proxy for Economic Growth and used as the dependent variable; whereas, prime lending rate (interest rate), inflation and private domestic investment were used as explanatory variables to measure interest rate. Hypotheses were formulated and tested using Ordinary Least Square econometrics models.  Private domestic investment had a significant effect on Gross Domestic Product in Nigeria. Inflation had an insignificant effect on Gross Domestic Product in Nigeria. Interest rate had an inverse significant effect on Gross Domestic Product in Nigeria. The coefficient of determination indicates that about 65% of the variations in economic growth can be explained by changes in commercial bank lending variables in Nigeria. The study concluded that interest rate had an insignificant effect on economic growth in Nigeria. The study recommended that Government and policy makers should focus on maintaining inflation at a low rate (single digit) and ensure that the rate is stable; this will take care of the problem of inflation on the economy. CBN should increase their surveillance on the commercial banks; in order to address the issue of arbitrarily increase of the lending rate. Government should provide healthy environment for the banks in the industry so as to render efficient financial services to the economy.

Keywords: Analysis, Determination, Economic, Growth, Interest Rate, Nigeria


Article Review Status: Published

Pages: 46-53 (Download PDF)

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