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07030248044This research examined the effect of interest rate change on savings in Nigeria. The survey research was used in this study to sample the opinion of respondents. This method involved random selection of respondents who were administered with questionnaires. Relevant conceptual, theoretical and empirical literature was reviewed. The target population of the study comprised selected students from Ogun metropolis, Ogun State, Nigeria. The questionnaire administered was three hundred and ten (310) copies and three hundred copies (300) retrieved which constitute the sample size. The descriptive and analytical approach was adopted using Chi-square to test and analyze the hypotheses earlier stated. The result revealed that there is a significant effect of interest rate changes on savings in Nigeria. The finding of the study also reveals that rate of inflation is one of the causes of changes in interest rate in Nigeria. The findings of the study also reveal that there is a significant relationship between interest rate changes and savings in Nigeria. The finding of the study also reveals that fluctuation of the supply of and demand for fund is one of the causes of changes in interest rate in Nigeria. The findings of the study reveal that interest rate changes increases the growth performance of commercial banks in Nigeria. It was therefore concluded that interest rate change significantly effects the savings of household in Nigeria. It was recommended that Government should ensure that the interest rate payable on savings is such as to stimulate savings rather than consumption, as it has been shown from this research that interest rates have a positive effect on savings, which in turn stimulate investments.
CHAPTER ONE
INTRODUCTION
Background of the Study
Every economy uses interest rates as a key tool for monetary policy to encourage economic development, particularly through the investment process.Any economy's short- and long-term interest rate volatility is a defining characteristic(Osuji 2020). Interest rates fluctuate in reaction to a variety of economic factors, including shifts in governmental policy, crises on the domestic and global financial markets, and adjustments to expectations for long-term economic growth, inflation, the business environment, and investment.However, these macroeconomic trends frequently exhibit irrationality (Acha&Acha, 2011). Interest rates fluctuate more frequently according to the business cycle, which is the expansion and contraction the economy goes through over time.In terms of the role it plays in the mobilization of financial resources intended to promote the development and growth of the economy, interest rate policy is a key tool of monetary policy in Nigeria. Savings and interest rates are tightly connected (Adenuga, 2020). They are among the economic factors that are crucial to a variety of stakeholders, including the government, corporations, individuals, startups, foreign investors, the financial industry, and households.They are so crucial that they greatly influence the amount of investment and the rate of economic expansion in a country.
A firm's success may be threatened in either a positive or negative way by the interest rate, a crucial macroeconomic determinant (World Bank Group, 2015). The household price index, inflation rate, unemployed people, gross domestic product (GDP), stock market index, and corporation tax rate are other macroeconomic variables(Broadstock et al., 2011). Although management has some power over micro issues, it has no control over macro factors like interest rates(Dioha, Mohammed and Okpanachi, 2018). The cost a borrower pays to use the money they borrow from a financial institution or the fee paid on loaned assets is known as the interest rate.According to Ngugi (2001), an interest rate is a price for money that reflects information from the market about the anticipated change in the purchasing power of money or upcoming inflation. Because they regulate how much money flows through the economy, interest rates are crucial(Murungi, 2014). High interest rates prevent inflation but can cause the economy to sputter. Low interest rates encourage economic growth but may cause inflation. The aggregate rates of failure or default of enterprises in Nigeria are intensified by rising nominal interest rates and inflation rates (Khan & Mahmood, 2013).
Khan and Mahmood (2013) demonstrated that some industries' financial structures make their enterprises more vulnerable to interest rate volatility than others.Mnang'at et al. (2016) revealed a substantial correlation between interest rates and the financial performance of micro enterprises in Kenya, despite Barnor (2014) finding a large negative correlation between interest rates and stock market returns of listed companies in Nigeria.
Variations in interest rates have an impact on how much and how often people save and invest. The level of interest rates available in an economy has a significant impact on investment behavior. Investors' appetite to hold risky assets like bonds and stocks varies (Inimino, Abuo, & Bosco, 2018). Investors who rely on stocks and bonds to fund their consumption profile have a relatively high risk of having low consumption when the returns to owning these assets are highly volatile. In light of the role it is anticipated to play in the deregulated economy by encouraging savings that can be channeled to investment and thereby increasing employment, output, and promoting efficient financial resource utilization, interest rate policy is one of the emerging issues in current economic policy in Nigeria.Additionally, interest rates can significantly affect the volume and use of savings as well as national productivity, which in turn can have an impact on the rate and pattern of economic growth. The acquisition of a financial instrument or other valuable assets with the hope of receiving favorable future returns is known as investing in finance.Investment, in its broadest sense, refers to the use of money with the intention of increasing it. Investment, as described by Keynes (2007), is the creation of new capital goods, factories, and machinery.He also uses the term "investment" to refer to actual, not only financial, investment. Investment is a deliberate action taken by an individual or any company that entails placing money (cash) into securities or other assets offered by any financial institution with the goal of achieving the desired returns over a predetermined time frame. The economy must produce enough savings or borrow money from overseas to finance the investments needed for economic expansion.However, because these loans must eventually be repaid, borrowing from overseas may not only negatively affect the balance of payments but also pose a foreign exchange risk.Therefore, adequate domestic saving is essential for economic growth since it is a component of the most crucial development economics issues, which for developing nations include how to encourage investment and how to raise the level of saving to finance increasing investment.In reality, domestic savings mobilization's critical contribution to the maintenance and augmentation of the savings-investment-growth link in developing nations has long been a focus of development economists (Lewis, 2010). As a result, the primary goal of this study is to empirically examine how interest rates affect savings and investment in the Nigerian context. This research is essential because it will help shed light on ways to boost domestic savings and investment in the economy.
Statement of the Problem
Since the middle of the 1980s under the controlled regime, the Nigerian economy has experienced significant interest rate fluctuations at various points; as a result, these changes have had an impact on savings. The idea behind preferred interest rates was that some priority industries would be left out of the market if it operated freely.In order to encourage greater levels of savings, which will enhance investment in the many chosen sectors of the economy, interest rates were thus changed by the invisible hand. The interest rate reform, a policy that developed under the financial sector, followed the regime of controlled interest rates closely.The researcher should reconsider the effect of interest rates on savings and investment in Nigeria, nonetheless, due to grave concerns. It is based on this background that the present study seeks investigate the effect of interest rate change on savings in Nigeria.
Objectives of the Study
The main objective of this study is to examine theeffect of interest rate change on savings in Nigeria. Specific objectives of the study are;
Research Questions
The following questions were derived to give the present study a direction;
Research Hypotheses
The following were hypothesized in the present study;
Hypothesis 1
H0: There is no significant effect of interest rate change on savings in Nigeria.
Hypothesis 2
H0: There is no significant relationship between interest rate change and saving in Nigeria.
H1: There is significant relationship between interest rate change and saving in Nigeria.
At the empirical level, the divergent and contentious views of renowned authors regarding the effect of interest rates on savings and other topics have grown too problematic and need to be settled, if not diminished.If the ambiguity around the subject is not resolved by empirical evidence, it will continue to obstruct creative approaches to interest rate policy. The ambiguity surrounding the subject has caused significant issues for macroeconomic management.
It highlights the reality that savings come before investments, which come before employment and, consequently, before individual well-being or the wellbeing of the nation as a whole. Therefore, saving might result in economic growth.This syllogism supports the logical claim that mobilizing savings does result in a nation's well-being through genuine progress. An dangerously low level of awareness is now present.
The study is equally important from a socioeconomic perspective because it shows that Nigeria's material poverty and underdevelopment are largely caused by macroeconomic management's failure to recognize that wealth and employment creation can only be achieved through a strong manufacturing sector. Macroeconomic management also fails to recognize the necessity of increasing savings mobilization or reducing the amount of money spent on maintaining a bloated, sybaritic government. In light of this, it is not incorrect to hold that Nigeria's abject failure to industrialize stems from a lack of a savings culture.
The extent to which the entire financial system has aided or hindered the mobilization of savings should also be carefully considered. And in particular, it is important to consider the characteristics that enable institutions to increase public confidence through their different support and monitoring roles.
1.7 Delimitation or scope of the study
The scope of this study is to examine the effect of interest rate change on savings in Nigeria. Moreso, in terms of the theory of economic policy, the objectives of policy and the instruments available to the government are paramount. In the first place, economic objectives at the macroeconomic level are set in terms of full employment, price stability and rapid economic growth, together with long-term equilibrium in the balance of payments.
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