Abstract

<p>This study examined the effect of interest rate on private investment in Nigeria. The objective was to determine the extent to which various interest rates affect real sector investment. Time series data were sourced from Central Bank of Nigeria Statistical bulletin and publications of Nigeria Bureau of Statistics from 1990-2023. Private investment was modeled as the function of savings rate, real interest rate, monetary policy rate, maximum lending rate and prime lending rate. The study used Ordinary least square methods. The study found that 60.2 percent of the variations in dependent variables the long run is accounted for by variations in the study's explanatory variables. The results further indicates that savings rate have positive but no significant effect, real interest rate have positive and no significant effect, monetary policy rate have positive and significant effect, prime lending rate have positive and significant effect while maximum lending rate have positive and no significant effect on private investment in Nigeria. The variables were stationary at first differencing and it is integrated of 1(1). There were the 4 co-integrating equation at the 5% level of significance while the vector error correction model (VECM) result found 69 percent variation which indicates a good fit with an F- statistic value of 3.901566 and a probability value of 0.044452 which judged the model significant. We conclude that there is significant relationship between interest rate and real sector investment in Nigeria. From the findings, we recommend that government should set a sound and fertile environment such as further reforms in the banking sector and deregulations of savings and lending rates in order to foster private investment</p>