Title: Dollarization, Inflation, and Interest Rate in Nigeria
Authors: Andrew E.O Erhijakpor, PhD
Volume: 9
Issue: 2
Pages: 1-7
Publication Date: 2025/02/28
Abstract:
Given the importance of access to affordable credit for economic development, which can be deterred by unstable exchange rate resultant in inflation and increasing cost, the study explored specificdynamics (real exchange rate, US dollar cross exchange rate, Pound sterling cross exchange rate, producer price index and consumer price index)and how they influence interest rate(lending rate) in Nigeria.Data for the selected variable were sought from CBN statistical bulletinfor the period of 1995 to 2022. The economy of Nigeria serves as the study population as well as sample. The quantitative method of data analysis was employed coupled with variety of important statistics to explain the extent of the relationship between dollarization, inflation and interest rate in Nigeria. The analysis was performed via E-views version 9.0. The results show that real effective rate of exchange has positive and meaningful influence on interest rate in Nigeria, US cross exchange rate has positive and meaningful influence on interest rate in Nigeria. Similarly, POEXR values shows that Pounds Sterling cross exchange rate has negative and significant influence on interest rate in Nigeria. CPI and PPI values shows none of the proxies for inflation was significant at 5% but consumer price index has positive effect.The study concludes that the increase in foreign currency (dollarization) significantly affect interest rate in Nigeria compare to inflation.Given the results, the study recommends that more efforts should be made to reduce the deterioration of the naira so that inflationary tendencies would reduce in the country. Despite the insignificance of inflation, efforts should be made by government to monitor the prices of certain commodity so as to mitigate their adverse effect on the economy.