Interest Rate and Investment in Money Market Instruments in a Developing Economy: A Case of Nigeria

Abstract

The relationship between interest rate and investment has been a largely discussed and controvertible one across different economic climes. It is in the light of this that this work was set out to investigate the influence of interest rate on outstanding money market instruments in Nigeria.   The study adopted the quasi-experimental and analytical method using secondary data drawn from the Central Bank of Nigeria Statistical Bulletin covering the period 1981 to 2014. Basic Descriptive Statistics were used to expose the data characteristics while linear association was tested using the bivariate correlation Matrices. Basically, the Ordinary Least Squares form of regression was adopted as the principal estimation method. It was found out that interest rate positively and significantly impact on the investment in both public Money Market instrument (Treasury bill) and corporate money market instrument (Commercial Papers) in Nigeria. On the basis of the above, it is expected by way of policy implication, that the government should dutifully manage the interest rate regimes to allow for a purposeful driving of the money market to the advantage of the economy and market players alike.