Udemeobong Bahakongfe Umagu

Type of the article: Research article

Abstract
Interest rates facilitate credit flow in the economy, serve as a monetary transmission mechanism, and support banks in their role as financial intermediaries. Macroeconomic performance enhances people’s economic well-being and enables stable economic development. The study aims to examine the effects of Nigerian banks' interest rates on macroeconomic performance in both the long and short run. The study used a historical research design. The model was estimated using the Vector Error Correction Mechanism (VECM) approach. The results showed that the effect of interest rates on gross domestic product was significantly negative in the long run (C = –0.48985, t = –2.31238, p < 0.05), but not in the short run (p > 0.05). Interest rates exerted a negative, insignificant effect on savings in the long run (C = –0.01912, t = –0.73741, p > 0.05) and an insignificant effect in the short run (p > 0.05). Interest rates had a negative significant effect on gross fixed capital formation in the long run (C = –0.16559, t = –4.25940, p < 0.05) and insignificant effect in the short run (p > 0.05), while interest rates had a negative significant relationship with money supply in the long run (C = –0.05094, t = –2.10251, p < 0.05), and also significant in the short run (p < 0.05). Interest rate behavior is crucial for determining bank performance; therefore, banks should develop and deploy policy instruments to stabilize interest rates and encourage substantial investment.