Interest Rate Targeting: A Monetary Tool for Economic Growth in Nigeria? - Stakeholders’ Approach

Abstract

The paper assessed interest rate impact on economic growth in Nigeria, considering the stakeholders’ approach. The continuous increase in interest rate always results to a slow economic growth. It is believed that interest rate may not eventually lead to lull economy especially in industrialized economies because these economies do not totally rely on assembling and consumption of goods and services, but majorly on production and distribution of goods and services[1]. The study adopts simple ordinary least square method to identify existing relationship between variables. The regression results were significant and Error Correction Mechanism helped to correct the dynamism that might exist. The time series analysis was adopted for 40 years (1970- 2010), which shows evidence and supports that larger proportion of borrowing by Nigerian government, which are majorly financed by the apex bank has led to uncontrollable excess liquidity and inability of locally manufacturing firms, and small enterprises to raise loanable funds from banks. The paper therefore concluded that it will be difficult to generalize interest rate as equal either in developed or developing economies as result of the significant and un-comparable difference in social –economic belief, approaches and existing structures. It suggests that interest rate should play an un-comparable role in enhancing economic growth and sustainable activities in Nigeria