Received: November 27, 2019 Accepted: December 17, 2019 Published: December 17, 2019
The study investigated the effect of interest rate on savings and investment in Nigeria. Specifically, the study examined the effect of interest rate on savings and investment in Nigeria. Macroeconomic variables on interest rate, inflation rate, exchange rate and gross domestic product were proxied as the determinant of interest rate on savings and investment respectively. The data were obtained from secondary source, namely Central Bank of Nigeria Statistical Bulletin (2017) over a period of thirty (32) years (1986–2017). Unit root tests, Ordinary least square, Johansen co integration tests and Error correction models were employed as the analytical techniques. The result of the study showed that there is long run relationship among the variables. The ECMs are correctly signed and statistically significant thus validating the presence of long run relationship amidst the variables and that about 10.30 percent and 95 percent of the short run inconsistencies are corrected and incorporated into the long run dynamics, annually. The overall models are significant, given the F-statistics probability value of 7.117448 and 2.131461 which is greater than F-tabulated 2.05 that is, 7.117448>2.05; 2.131461>2.05. The study concluded that interest rate has negative effect on savings while it has positive effect on investment in Nigeria. Therefore, the study recommended that the CBN should adopt interest rate policy that will always boost the savings culture of the real sector. This can be achieved by increasing the interest paid on deposit made by individuals, local and foreign investors. The study further suggested that Monetary authorities should also find ways of determining the rate at which interest should be maintained to encourage borrowing for investment purposes and exchange rate policies should consider the necessity of price and interest rate stability.