Abstract

<p>This study examined the effect of interest rates on capital formation in Nigeria. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin from 1990-2021. Gross fixed capital formation was modeled as the function of Savings Rate, Real interest rate, Prime lending rate and Maximum Lending rate. Multiple regressions with econometrics view statistical package were used as data analysis techniques. Co-integration, Granger Causality Test and Augmented Unit Root Test were used to determine the long and the short run relationship that exist among the variables. The study found that there was variation of 73 percent on Nigeria gross fixed capital formation of the country due to changes in interest rates. The study further revealed that there was a strong positive relationship between the study variables. the study found that that savings rate and prime lending rate have positive and significant effect of Nigeria fixed capital formation, real interest rate have positive but no significant effect while maximum lending rate have negative and no significant effect on Nigeria gross fixed capital formation. The study concluded that there is statistically significant relationship between Savings rates, and gross fixed Capital formation in Nigeria. There is statistically significant relationship between prime lending rate and gross fixed Capital formation in Nigeria. There is statistically significant relationship between maximum lending rate and gross fixed Capital formation in Nigeria. It was recommended that there should be effective and implementable monetary policies to back the interest rate interest rate and there should be policies to deepen the operational efficiency of the financial market enhance Nigeria gross fixed capital formation. Interest rate should be deepened and the policies revisited to meet the financial development needs of the economy. Nigerian Interest rate structure such as lending, and prime lending rate should be harmonized with the objective of enhancing to enhance Nigeria gross fixed capital formation and Nigeria monetary authorities should increase savings rates to enable deposit institutions to mobilize fund for investment as this has great extent to effect to enhance Nigeria gross fixed capital formation.</p>