The Effect Of Interest Rate On Savings In Nigeria

The Effect Of Interest Rate On Savings In Nigeria

Abstract

This study examined the effect of interest rates on savings in Nigeria Using multiple retrogression analysis. The study also carried out some individual tests like heteroskedasticity, periodical correlation test and stability test. This work made use of secondary data sourced from the central bank of Nigeria statistical bulletin from 1981 to 2014. The result of this retrogression analysis showed that the measure of interest rate was positive and the position of significance,0.05 was lower than the p- value so interest rate has a positive but insignificant relationship with savings in Nigeria. The control variable used( GDP and government expenditure) also showed positive but insignificant relationship with savings. This simply means that interest rate has no significant effect on savings in Nigeria. Rather, savings are affected by low income. Since the result shows a positive relationship between interest rates and saving, it was recommended that the central bank should borrow a policy of interest rates that won’t only boost savings in Nigeria but also ameliorate the position of investment which will in the long run increase the income of individualities and thereby adding their position of savings and thus that of the frugality as a whole. Also the government should spend further on feasible systems as it increases investment, income, savings and eventually profitable growth. The government should also give enabling terrain to thrive as this will increase income thereby adding total savings of the country.

Background of the Study

Interest rate and savings are inseparably linked. They’re among the profitable variables that are of great significance to a large number of people, the government, business enterprises, entrepreneurs, foreign investors, the fiscal sector and the ménage. They’re so important that they determine to a large extent the position of investment and the profitable growth in an frugality( Udude, 2015). Interest rate is an important profitable price. This is because whether seen from the point of view of cost of capital or from the perspective of occasion cost of finances, interest rate has abecedarian counteraccusations for the frugality either impacting on the cost of capital or impacting the vacuity of credit, by adding savings( Acha and Acha 2011).

Interest rate is the occasion cost of adopting plutocrat from a lender to finance investment design. It’s the price paid for the use of plutocrat. Interest rates play important part in controlling major macroeconomic variables. The primary part of interest rate is to help in the rallying of fiscal coffers and to insure effective application of coffers for the creation of profitable growth and development( CBN 1970). Savings is defined as that portion of income after duty, which isn’t spent on consumption goods. Savings can also be seen as that part of income, which isn’t devoted to the purchase of ménage particulars and establishment( McKinnon, 1973).