– Effects of Real Interest Rate on Savings in Nigeria –
Download Effects of Real Interest Rate on Savings in Nigeria project materials: This project material is ready for students who are in need of it to aid their research.
ABSTRACT
The study examined the effects of real interest rate on savings in Nigeria from the period of 1980-2014.
specifically the study analysed the relationship between real interest rate and savings with secondary data using the ordinary least square econometric technique.
The empirical findings of the study provide evidence that there is a negative relationship between real interest rate and savings in Nigeria.
Thus recommended that policy makers should focus on maintaining and ensuring interest stability as this should positively impact in the Nigeria economic growth.
INTRODUCTION
Background of the Study
Interest rate and savings are among the economic variables that are important to a broad number of people, business firms, the government, entrepreneurs, foreign investors, the household and the financial sector because they determine the extent of economic growth and development that an economy can achieve (Udude, 2015).
Fuller (1990) described interest rate as the factor reward or price paid for capital and further state that this source of finance will only be available if other people are willing to forgo current consumption and provide a pool of financial resources from which loans can be advanced.
Real interest rate which is adjusted for inflation shows the real cost of borrowing money by a borrower and the real returns accrue to an investor unlike tshe nominal interest rate that is not adjusted for inflation.
It is intuitive that real interest rate, savings and investment are all linked. According to Professor Soludo (2008), every economy is always interested in the level of its real interest rate as this can lead to either high or low savings or investment.
Real interest rates are regarded as ‘high’ or ‘low’ relative to some economic fundamental: the level of inflation rate; the degree of uncertainty and risk the economy face; the structure and competitiveness in the banking system.
The level of development of the nation’s financial markets; the cost of funds to the bankand the demand for credit by government when it runs deficit and whether it competed with the private sector.
Generally, interest rates can be seen as a price paid for capital that is desirable to both the investor and borrower, in other to reward depositors and encourage long-term savings and also to reward lenders.
Desroches and Francis, (2007) pointed out that some economists agree that real interest rate which has been adjusted for inflation is determined in the market for investment and savings and thus by the forces of productivity and thrift.
However, it is proper to say that real interest rate adjusts to equilibrate desired savings (providing the net supply of funds) with desired investment (generating the demand for funds) and that investment and savings decisions are made by each of the three sectors of the world economy: households, firms and government.
Recall that real interest rate is nominal interest rate adjusted for inflation and the Nigerian economy has experienced some movements in these two variables. As at 26th January, the CBN kept its benchmark interest rate at 11 percent following a previous 13 percent benchmark.
REFERENCES
Acha, I. A., & Acha, C. K. (2011). Interest Rates in Nigeria: An Analytical Perspective. Research Journal of Finance and Accounting, 2(3).
Alesin, A., & Arazen, A. (1991). Why is Stabilization Delayed? American Economic Review, 81, 1170-1118.
Aysan, A., Gaobo, P., & Ange, V. V. (2005). How to Boost Private Investment in the MENA Countries, The Role of Economic Reforms. MEEA, Online Journal (VII), 1-15.
Bader, M., & Malawi, A. I. (2010). The Impact of Interest Rate in Jordan: A Cointegration Analysis. JKAU: Econ. and Admin., 24(1), 119-209.
Bernanke, B. (2005). The Global Savings Glut and the U.S. Current Account Deficit. The Homer Jones Lecture: St. Louis, Missouri.
CBN. (2000). The Changing Structure of the Nigerian Economy and Implications for Development. Lagos: Realm Communications.
Christopher, O., Asor, A., & Idoko, I. A. (2012). An Assessment of the Impact of Interest Rates Deregulation on Economic Growth in Nigeria. Journal of Business and Organizational Development, 4, 39-57.
Desroches, B., & Francis, M. (2007). Global savings, Investment, And World Real Interest Rates. Canada: Bank of Canada Review.
Join Our Newsletter!
Don’t miss this opportunity
Enter Your Details
Be the first to comment