Volume 07 Issue 06 June 2024
1Bilewu, Olukayode Abiodun, 2Orenuga, Babatunde, 3Abass, Kehinde B
1Department of Accounting, Olabisi Onabanjo University, Ago- Iwoye, Ogun State Nigeria.
2Department of Accounting, Lead City University Ibadan, Oyo State, Nigeria.
3Department of Finance, Babcock University, Ilishan Remo, Ogun State, Nigeria.
DOI : https://doi.org/10.47191/ijsshr/v7-i06-117Google Scholar Download Pdf
ABSTRACT
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.
KEYWORDS:Interest Rate, Real Gross Domestic Product, Correlation, Inflation
REFERENCES1) Abayomi, A. T., & Adebayo, S. M. (2010). Determinants of Interests Rate in Nigeria: an Error Correction Model. Journal of Economics and International Finance, 2(12), 261-271.
2) Abdul Aziz, F. S., & Marwan Mohammed, A. O. (2013). The Effect of Interest Rate, Inflation rate, gdp, on real economic growth rate in Jordan. Asian Economic and Financial Review, 3(3), 341-354.
3) Adrian, O., Macolm, E., & Michael, K. (1995). The Determinant of Rela Long-term Interest Rates: 17 Country Pooled-Time-Series Evidence . OECD Economics Department Working Papers(OECD (95)61).
4) Anthony, A. E., & Babatunde, O. A. (2012). The Determinants of Interest Rate Spread in Nigeria: An Empirical Investigation. Modern Economy, 2, 837-845.
5) Bredino, S. (2024). Monetary Economics: A Concise Text. Sofiata Publications, Nigeria.
6) Bredino, S., & Fiderikumo, P. (2018). Foreign Direct Invesment and Economic Growth in Nigeria. Journal of Economics and Business, Vol. 1, No. 3, 260 -267.
7) Bredino, S., Dikeogu, C., & Fiderikumo, P. (2022). Fiscal Policy and Unemployment in Nigeria: A Structural Analysis. African Journal of Business and Economic Development, Vol. 2, Issues 12, Pp. 117 -126.
8) Bredino, S., Fiderikumo, P., & Adedoyin , A. (2018). Impact of Capital Flight on Economic Growth in Nigeria: An Econometric Approach. Journal of Business and Economic Development, 3(1), 22-29.
9) Central Bank Of Nigeria. (2022). Annual Statistical Bulletin.
10) Christ, U. O., & Ayingan, R. (2012). The Effect of Interest Rate Fluctuation on teh Economic Growth of Nigeria. International Journal of business and Social Science, 3(20), 295 -302.
11) Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a unit root. Journal of the American Statistical Association, 74(1): 427-431.
12) Keynes, J. (1936). General Theory of Employment, Interest and Money. London: Harcourt.
13) Nwankwo, O. C. (2011). A Practical Guide in Research Writing. Port Harcourt: Pam Unique Publishers Co. Ltd.
14) Obamuyi, T. M., & Olorunfemi, S. (2011). Financial Reforms: Interest rate behaviour and economic growth in Nigeria. Journal of Applied Finance & Banking, 11(4), 39-55.
15) Tomola, O. M., & Sola, O. (2011). Financial Reforms, interest rate behaviourand economic growth in Nigeria. Journal of Applied Finance & Banking, 1(4), 39 -55.