Impact of Interest Rates on Exchange Rate in Nigeria: An Analytical Investigation

  • Abdurrauf BABALOLA ALHIKMAH UNIVERSITY, ILORIN
Keywords: Exchange rate, Interest rate, Time deposit rate, Treasury bill rate.×

Abstract

This work examined the impact of interest rates on exchange rate in Nigeria. Data set was monthly collected from the Central Bank of Nigeria online database. Interest rates were represented by short term interest rates proxied by Lending Rate, Treasury bill rate, Saving/deposit rate and Time deposit rate. Price level (inflation rate) was included as a macroeconomic variable, between January 2007 and April 2021. Auto-Regressive Distributed Lag and Cointegration techniques were employed. Findings showed that in the short run, only Treasury bill rate and Price level have significant impact on foreign exchange rate. However, in the long run, all the four variables used to proxy short term interest rate have significant impact on foreign exchange rate in Nigeria. Although the speed of adjustment or switch was quite low, it was correctly signed and significant. The study therefore recommends that, the monetary authority uses Treasury bill rate to influence local currency to achieve short term goal and should adjust the lending rate, Treasury bill rate savings/deposit rate and time deposit rate to achieve long term stability in the local currency exchange rate.

Author Biography

Abdurrauf BABALOLA, ALHIKMAH UNIVERSITY, ILORIN

Department of Economics, Lecturer I

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Published
2022-05-14
How to Cite
BABALOLA, A. (2022). Impact of Interest Rates on Exchange Rate in Nigeria: An Analytical Investigation. Timisoara Journal of Economics and Business, 14(2), 107-124. Retrieved from https://www.tjeb.ro/index.php/tjeb/article/view/347
Section
Articles