EFFECTS OF LENDING AND DEPOSIT INTEREST RATE FLUCTUATION ON THE NIGERIAN ECONOMIC DEVELOPMENT

Abstract

According to Keynes, interest rate is the reward for not hoarding but for parting with liquidity for a specific period of time. Keyne’s definition of interest rate focuses more on the lending rate of interest and this is the area where most researchers are focusing. This write up therefore intends to examine both the Lending Interest Rate and Deposit Interest Rate and the effects of its fluctuation on the Nigerian Economic Development. The study made use of Secondary Data sourced from the Central Bank of Nigeria Statistical Bulletin and between 1981 and 2015. The researcher used Ex-post facto research design which was influenced by the nature of the data used. Data collected were analyzed and tested using   Graph, Unit Root Test, Co-Integration Test, Error Correction Model (ECM) test and Granger Causality test. The study concludes that (1) there is no significant relationship between the Lending Interest Rate and Nigerian Economic Development (2) there is no significant relationship between the Deposit Interest Rate and Nigerian Economic Development. The researcher therefore recommends (1) That the government policy in Nigeria should aim at reducing inflation rate since  it is the major factor that influences the value of money in an economy. (2)The government and monetary regulatory bodies should reasonably ensure the stability of interest rate policy that will reduce the fluctuation of the lending and deposit interest rate. (3)The financial system should encourage an interest rate that will be favorable to both the depositor and borrowers. (4)Enough awareness should be created by financial institution and policy makers to educate the depositors and borrowers on the merits and demerits of interest rate.