DETERMINANTS OF INTEREST RATE AND ITS EFFECT ON THE NIGERIAN ECONOMY

Abstract

This research examines data from 1998 through 2022 on interest rates and the Nigerian economy. Among the secondary sources taken into consideration is the Central Bank of Nigeria bulletin 2022. GDP serves as a proxy for the Nigerian economy in this research; variables that provide insight into GDP include inflation, private domestic investment, and the prime lending rate (interest rate). Using econometric techniques such as ordinary least squares, develop and test hypotheses. Investment from outside is essential to Nigeria's economy. Nigeria's inflation rate is positive, although it doesn't significantly impact GDP. Interest rate fluctuations hardly affect Nigeria's GDP. According to the coefficient of determination, changes in the variables related to commercial bank lending in Nigeria are responsible for more than 60% of the country's economic variations. The data showed that interest rate setting had a marginally encouraging influence on Nigeria's economic expansion. Governments and policymakers may be able to address the inflation problem by keeping inflation rates low and steady (in the single digits) if they take the study's recommendations to heart. The CBN needs to regulate the commercial banking sector more strictly to stop banks from raising lending rates arbitrarily. It is the job of legislators and the government to foster an atmosphere that motivates banks to provide effective financial services to the economy.