INTEREST RATE AND INVESTMENT DECISION IN NIGERIA

This study investigates the effect of interest rates on investment decisions in Nigeria over the period 2019 to 2025. Specifically, it examines the impact of nominal interest rates, effective interest rates, real interest rates, and savings rates on investment levels, using Gross Fixed Capital Formation (GFCF) and other private investment indicators as proxies. Secondary data were sourced from the Central Bank of Nigeria (CBN) statistical bulletin, National Bureau of Statistics (NBS), World Bank, and IMF financial databases. A multiple regression analysis was employed to assess the strength and direction of the relationships among the variables. Descriptive statistics were also used to present trends and patterns in the data. The study adopts an ex-post facto and descriptive research design, leveraging a purposive sampling technique to select relevant macroeconomic data. The econometric model specification was guided by prior theoretical expectations: effective and nominal interest rates were hypothesized to have a negative effect on investment, while savings rates were expected to have a positive effect, and real interest rates a mixed effect depending on inflationary dynamics. The empirical findings revealed that nominal interest rate and savings rates exert a statistically significant negative effect on investment decisions in Nigeria, confirming that high interest rates discourage capital formation. Conversely, the effective interest rate was found to have a positive and significant influence on investment. Real interest rates exhibited a mixed impact, dependent on prevailing inflation rates and investment return expectations. The study recommends proactive monetary policy reforms aimed at reducing lending rates and improving savings mobilization. It also emphasizes the importance of maintaining real interest rates at optimal levels to foster a conducive investment climate. Overall, the research offers valuable insights into the dynamics between interest rates and investment in a developing economy context and contributes to the literature on monetary policy and investment behavior in emerging markets.