INTER-RELATIONSHIPS AMONG INTEREST RATES, SAVINGS AND INVESTMENT IN NIGERIA: AN EX POST ANALYSIS FOR 1975-1992 PERIOD WITH PROJECTIONS FOR 2010

This paper simulated the inter-relationships among interest rates, savings and investment in Nigeria between 1993 and 2010, using historical data on Nigeria spanning a period of 18 years (i.e. 1975-1992). By assuming diverse theoretical underpinnings and approaches, this study examined, in particular, what the connections and the directions of causality imply for interest rates policy, and savings mobilization and investments in Nigeria. Preliminary analysis carried out based on the historical data confirmed that the real interest rates had a negative effect on the investment rate in Nigeria between 1975 and 1992. Also, a positive association was found between the investment rates and the savings rates in Nigeria over the review period. This latter finding, thus suggest that persistent, low or negative real interest rates will discourage or fail to stimulate the savings rates, and may stifle qualitative investment in Nigeria. Ex ante forecasts beyond the historical data period further suggested that a marked decrease in the real lending rate would not result automatically into increased domestic investment. Similarly, a sizeable decline in the real deposit rate will not prevent a marked growth in total savings. Nonetheless, the gross domestic production should posit a 4.2percent growth rate in real terms between 1993 and 2010. Key words: interest rate, investment