Impact of Exchange Rate on the Nigeria's Balance of Payment 2

ABSTRACT

The study investigates empirically the impact of interest rate on manufacturing sector output in Nigeria. The broad objective of this study is; to determine the impact of interest rate on manufacturing sector output in Nigeria. Annual data on manufacturing sector output, inflation rate, commercial banks total loan volume

and interest rate from the Central Bank of Nigeria statistical bulletin and IndexMundi covering the period 1981 – 2015 were utilized. A model was constructed to incorporate manufacturing sector output as dependent variable, and commercial banks total loan volume, inflation rate and interest rate as the independent variables and tested using the Ordinary least Square (OLS) Methods. The Stationarity (Unit roots) status of the series was examined using the appropriate statistics. Some of the assumptions of the OLS models were also tested to avoid spurious regression. The granger causality test was also conducted to determine the directions of causality. However, the result showed that commercial banks total loan volume and inflation rate had positive impacts on manufacturing sector output in Nigeria during the period covered while interest rate had negative impact on manufacturing sector output of Nigeria. The study recommends that The Central Bank of Nigeria and other monetary authorities should reduce the interest rate being charged on loans borrowed from the commercial banks through the reduction of bank rate and other deposit requirements of the commercial banks in order to make funds available to the manufacturing sector of the country which will increase its output.