ABSTRACT

This study was embarked upon with a view to determining the impact of interest rate volatility on investment decision in Nigeria. Data were sourced from CBN statistical bulletin and Securities and Exchange Commission. An econometric analysis between the periods of 1981-20]4.Data were analyzed using unit root test, ECM method test, co-integration test and Granger Causality Tests. Results indicate that: Interest rate is inversely related investment and also negatively related with GDP and also there exists a long-run equilibrium relationship between investment and interest rate in Nigeria within the period under study. On the basis of the above stated findings some policy recommendations were made. In the bid to achieve increase in investment, the relevant authority should adopt contractionary monetary policy which will help to reduce interest rate in order to increase investment level. The CBN should be autonomous from the control of the government. In this way, the CBN can establish open market operation (OMO) for government borrowing. This will not only limit government expenditure to their revenue but will help to stabilize the investment rate according to dedicate of the free market by this the traditional relationship between interest rate and public investment will be restored. From our findings, it can be ascertained that GDP has positive and statistically significant impact on investment. Based on this, we recommend that government and financial authorities should implement policies that favour income growth such as job creation and increase in salaries and wage increase as these will affect investment significantly.