Differential Impact of Interest Rate Regimes on Savings in Nigeria: New Empirical Evidence

This paper examined the differential impact of interest rate regimes on savings in Nigeria. Using the co-integration regression methodology and VAR based impulse response model with the corresponding variance decomposition, the study evaluated the model based on a dummy variable indicating the pre- and post-regime change. Findings from empirical research showed that prime lending rate had an insignificantly negative effect on savings in Nigeria. In addition, findings showed that the interest rate liberalisation policy did not have any significant effect on savings in Nigeria. However, the regime types moderated the effect of interest rate on savings rate in Nigeria. Furthermore, the results showed that changes in savings rate originated from the variation in itself and other variables such as exchange rate, inflation rate and gross domestic product growth. Based on findings, the paper concluded that there is a strong correlation between regime type and savings rate in Nigeria. The paper recommended a thorough review of the interest rate policy in order to reflect its true opportunity costs.