Analysis Of Interest Rate On Investment And Economic Growth Of Nigeria

Abstract

The study examined interest rate on investment and economic growth in Nigeria from 1990 to 2025. Specific objectives of the study includes, to examine the short and long-run impact  of lending rate on  private investment  in Nigeria and  to examine the trend in interest rate  and investment changes in Nigeria from 1990 to 2025. The study employed a quantitative research method where secondary data was sourced from Central Bank of Nigeria Statistical Bulletin, over the period from 1990 to 2025. Data retrieved was analyzed using statistical and econometric methods including descriptive statistics, trend analysis and ARDL.  Findings from the study revealed an inverse relationship between lending rate and Gdp from 2010 to 2014. Findings from the  unit root test results in Table 4.2 reveal that most variables are integrated of order one [I(1)], meaning they are non-stationary at levels but become stationary after first-differencing. The exceptions are the GDP growth rate (GDPG) and foreign direct investment (FDI), which are stationary at levels [I(0)]. The study concludes that interest rate policy does not operate in isolation but interacts with other macroeconomic and financial variables in determining private investment outcomes. Macroeconomic instability, as manifested in high and volatile inflation and sharp exchange rate depreciation, compounds the investment-dampening effect of high interest rates. Conversely, strong GDP growth and abundant credit supply can partially offset the negative effects of high interest rates by generating investment opportunities and providing the financing needed to seize them. Furthermore, the study recommends that the CBN adopts a more accommodative monetary policy stance with deliberate efforts to compress the wide spread between deposit and lending rates.