An Analysis of Interest and Exchange Rates Effect on the Nigerian Economy: 1975-2008

The study examines the impact of interest and exchange rates on the Nigerian economy from 1975-2008. Data for the variables were collected from the CBN statistical bulletin. The study employs the ordinary least square (OLS) technique in the analysis but due to the fact that data are not stationary, a unit root test was employed; it further resorted to co-integration analysis which establishes the existence of a long run relationship between the variables in the models. From our findings we discovered that an increase in interest rate retards investment and subsequently economic growth; and the lag one of exchange rate shows the expected positive sign, implying that depreciation in exchange rate retarded growth from 1975 to 2008. Thus, interest and exchange rates exerted negative impact on the Nigerian economy during the period under review. Consequent upon this, the study therefore recommends among others; that interest and exchange rates should be given due consideration, because a competitive and stable interest and exchange rates will stimulate growth through investment, will strengthen the commercial policy of the country and diversify the productive base of the economy.