IMPACT OF INTEREST RATE ON DOMESTIC INVESTMENT IN NIGERIA

This paper examines the impact of interest rates on domestic investments in Nigeria, analyzing the relationship between monetary policy and capital formation within the country. Interest rates play a critical role in determining the cost of borrowing and, consequently, the level of investments by domestic businesses. This study employs empirical data to explore the dynamics between interest rates and investment trends in Nigeria from 1981 to 2021. It also considers external factors such as inflation, exchange rates, and global economic conditions that interact with domestic interest rates to influence investment. The findings uncovered an upward trend in interest rates and fluctuating trends in domestic investment. The short run relationship was positive but insignificant but in the long run it becomes negative but insignificant. The results also shows that there is no causal relationship between interest rates and domestic investment. The findings underscore the need for balanced interest rate policies that promote sustainable investment growth, which is vital for Nigeria’s economic development.