Abstract

This paper presents a framework of analysis for examining the impact of changes in interest rate policy and financial reforms on economic growth. Using annual dataset for Nigeria for the period covering 1970 to 2008, our results are three-folds. Firstly, deposit rate of interest has a positive effect on financial depth. Secondly, the multivariate granger causality tests reveal that there is only one-way causality between financial depth and economic growth; the flow running from financial depth to economic growth. Finally, interest rate liberalization tends to granger cause financial depth and economic growth. This enquiry therefore suggests that a departure from rigidly fixed deposit rate of interest will enhance financial depth and improve the country’s rate of economic growth. The current financial reforms should be directed at achieving a more liberal deposit rate of interest.

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