ABSTRACT
The introduction of interest rate was first abolished during the medieval time and was legal in 1545 by King Henry VIII who abolished the usury laws and was later condemned. The central Bank of Nigeria later introduced interest rate deregulation into the monetary system, which was a part of the structural adjustment program (SAP) announced by the Head of State in July 1986. Interest rate world over, is the price of capital and constitute a return on capital for the lender or saver and ca therefore be used for several purposes including the reduction of inflation, promotion of capital flow and discouragement of capital flight.
With the deregulation of interest rates and the attendant competition on rate paid for deposits banks can now offer any rate to their customers within the range prescribed by the Central Bank of Nigeria.
This will help increase the growth of savings and investment or the freedom could also lead to increase in the cost of fund. In the economy, the higher cost of fund that will result may further stifle recuperating industries whose problems of low capacity utilization have been attributed to the high cost of borrowing. This will be particularly harsh on many small-scale operators.
It will be slated here that this study was made based on the major objectives of this project, which are;
(1)To determine the effect of interest on savings and investment.
(2)And to look into the policies in the country with a view to identifying their shortcomings and through its findings proffer some practical guide, which can be employed to accelerate the growth of saving and investment in Nigeria.
In chapter one, we are trying to explain the origin of interest rate, the objectives, the significance of interest rate on savings and investment, the scope of the study and finally the hypothesis, which will prove that interest rate really has an effect on savings and investment.
In chapter two, quite a lot was revealed because this is the body of the project. Various theories were proved to show that interest has an effect on savings and investment like the Keynes modern classical theory. This chapter was is also talking on how the central bank helps in the development of interest rate structure in Nigeria and the various policies that the Central Bank introduced to help in regulation of interest rate.
Chapter three is going to talk on the methodology, the type of data, research design and how the data will be analyzed, the type of data used is secondary data based on the documents available in the CBN and financial yearbook for various years.
The data also is from commercial bank deposit liabilities as well as their loan and advance.
In chapter four, we are going to analyze using regression analysis to see whether or not there is relationship between interest rate and loans and advances and between deposit and interest rate, then we test the hypothesis.
The final chapter comprised of the summary of findings, recommendations and conclusion.
As I said earlier, that this research work has been carried out on the objective of establishing a relationship between three variables; interest rate savings and investment.
In summary, we found out that the deregulation led to an increase in deposits and loans and advances than the regulated policy of interest rate. It was also found out that while savers reacted positively whenever the rate of interest rises, the borrowers reacted negatively when the rate of interest rises.
The following recommendations have been made to enable government use the interest rate as a weapon on the accelerating the growth at savings and investment.
Finally, government should review all the interest rate policies since their inception of banking business in Nigeria till date. There is the need to encourage activities in manufacturing firms so as to increase the quantity of goods produced.
In order to conclude this project, we started by saying that interest rate is one of the various instruments of monetary policy used by the central bank to ensure the realization of objectives like, low inflation, full employment, balance of payment equilibrium and a satisfactory rate of growth of real income. And that interest rate has also been identified as a factor that determines the level of savings and investment.
TABLE OF CONTENTS
TITLE PAGE I
APPROVAL PAGEII
DEDICATIONIII
ACKNOWLEDGEMENTIV
ABSTRACTVII
TABLE OF CONTENTSXI
CHAPTER ONE
1.1INTRODUCTION1
1.2STATEMENT OF THE PROBLEM6
1.3OBJECTIVE OF THE STUDY7
1.4SIGNIFICANCE OF THE STUDY8
1.5RESEARCH HYPOTHESES9
1.6SCOPE OF STUDY10
1.7DEFINITIONS OF TERMS10
REFERENCES12
CHAPTER TWO
LITERATURE REVIEW13
2.1THEORIES OF INTEREST RATE13
2.1.1THE CLASSICAL THEORY OF INTEREST RATE14
2.1.2KEYNESIAN THEORY OF THE INTEREST RATE15
2.1.3THE GENERAL EQUILIBRIUM APPROACH (MODERN)19
2.2FACTORS WHICH CAUSE VARIATION IN THE INTEREST RATE STRUCTURE21
2.3THE CONCEPT OF SAVINGS AND INVESTMENT23
2.4FACTORS WHICH INFLUENCE SAVINGS AND INVESTMENT28
2.5HOW THE INTEREST RATE DETERMINES LEVEL OF SAVINGS AND INVESTMENT31
2.6THE SUPPLY OF SAVINGS33
2.7THE PROBLEM OF BANK LENDING AND DEPOSIT IN Nigeria34
2.8EFFECTS OF INTEREST RATE POLICIES ON NIGERIAN ECONOMY38
CHAPTER THREE
3.1RESEARCH METHODOLOGY45
3.2RESEARCH DESIGN45
3.3TYPES OF DATA46
3.4SOURCES OF DATA46
3.5METHOD OF DATA ANALYSIS47
CHAPTER FOUR
4.1DATA ANALYSIS AND FINDINGS49
4.2DETERMINATION OF THE EFFECT OF INTEREST RATE ON LOANS AND ADVANCES49
4.3INTERPRETATION OF ANALYSIS56
4.4DETERMINATION OF THE EFFECT OF INTEREST RATE ON DEPOSITS57
4.5TESTING AND INTERPRETATION OF HYPOTHESIS59
CHAPTER FIVE
5.1SUMMARY 78
5.2RECOMMENDATIONS81
5.3CONCLUSION
5.4SUGGESTIONS83
REFERENCES84
BIBLIOGRAPHY85
APPENDIX
QUESTIONNAIRE89