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The Impact Of Interest Rate On Other Selected Macroeconomic Variables In Nigeria (1970-2010)
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As it were, the ceiling on interest rates were removed in January 1992
and retained in 1993. Interest rate in 1993 was volatile and rose to
unprecedented level. On the basis of the foregoing developments, some
measures of regulations were introduced in 1994. The developments in
interest rates within this period were generally within the prescribed
limits but the rates on the other hand were negative in real terms since
inflation was estimated to be over 50 percent.
All the same, the
banks still maintained the interest rate regime in 1995 with some
modifications just to make it flexible. Nevertheless, it should be noted
that the change in interest rates were significantly different from
what prevailed during the era of regulation. Over the past three
decades, high macro-economic instability has become a key determinant
and the consequence of poor economic management. Nigeria, a country
blessed with abundant natural resources is seen as one the countries
that have the most volatile macroeconomic aggregates. This is in order
with National Economic Empowerment and Development strategy (NEEDS,
2004) which says that “between 1975 and 2000, Nigeria’s broad
macroeconomic aggregates growth, the terms of trade, the real exchange
rate, government revenue and spending were among the most unstable in
the developing worldâ€.
It is these developments which have fuelled
the need to embark upon this study. It could be possible that the
macroeconomic instability is deep rooted in erratic movements of
interest rates.
1.2 STATEMENT OF THE PROBLEM
It is a well known
fact that the Nigerian Economy is characterized by volatile interest
rates, macro economic instability. Several measures embarked upon by the
CBN failed to correct these defects in the economy. The most important
of these measures were contained in the amendment of the CBN monetary
circular No 21 which diverted the control of rates from CBN on August1,
1987. The bank had been in control of the cost of credit in the economy
regulating the interest rates charged by the commercial and merchant
banks in their lending activities.
As it is, banks determination and
control of interest rates on loans did not help for the stability of
major macroeconomic variables due to the volatile nature of rates during
the planning period. Currently, interest rates are market determined
and the study intend to investigate the impact of interest rate on some
selected macroeconomic variables. In view of this, the research
questions are stated as below;
1. What is the nature of the relationship between interest rates and the gross domestic product of Nigeria?
2. What is the nature of the relationship between the interest rates and the level of domestic investment in Nigeria?
1.3 OBJECTIVES OF THE STUDY
The
broad objective of the study is to determine the relationship between
interest rate and other selected macroeconomic variable such as
Investments and Gross Domestic Product (GDP) in Nigeria.
The specific objectives are;
1. To determine the impact of interest rate on GDP.
2. To determine the impact of interest rate on investment
1.3 STATEMENT OF HYPOTHESES
The research hypotheses will be formulated in the null and alternative hypothesis form.
1. Ho: Interest rate has no significant impact on GDP in Nigeria.
Hi: Interest rate has significant impact on GDP in Nigeria.
2. Ho: Interest rate has no significant impact on investment in Nigeria.
Hi: Interest rate has significant impact on investment in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
The findings of this study will be considered significant in the following ways;
1. The major findings would be very useful to the CBN when formulating monetary policy for the country.
2.
The findings will be useful to the policy makers for providing
guidelines for controlling operations in money and capital market.
3. Lastly, the findings will serve as guidelines to the investing public in their decision making.
1.6 SCOPE OF THE STUDY
Interest
rates include mainly the lending rates. However, this study will be
limited to lending rates during the floating interest rates regime. The
study will cover the years from 1970 to 2010
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ABSRACT - [ Total Page(s): 1 ]This study was embarked upon with a view to determining the impact of interest rate on other selected macroeconomic variables in Nigeria. Data were sourced from CBN Abuja and NBS. Data were analyzed using the ordinary least square regression (OLS). Results indicate that: Interest rate is inversely related investment and also negatively related with GDP. On the basis of the above stated findings some policy recommendations were made.(1)Government should establish policies that encourage increase ... Continue reading---
