Interest Rate As A Determining Factor In The Growth Of Savings And Investment In Nigeria: (a Case Study Of Union Bank Of Nigeria Plc.)

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;

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.