INTEREST RATE REFORMS AND FINANCIAL DEEPENING IN NIGERIA

This main objective of the paper is to examine the effect of interest rate reforms on financial deepening in Nigeria. The methodology adopted for the study includes cointegration and vector error correction models (VECM) to determine the long and short run dynamics of the model. The paper examines time series data from 1973 to 2009. The results indicate that there exists a long run relationship between financial deepening and interest rates. We also find that interest rate reform has a positive and significant effect on financial deepening in Nigeria. The results here suggest that policy makers enact measures that positively influence financial development, economic growth, liquidity reserve ratio, domestic savings/GDP ratio as well as reforms to ensure the efficiency and development of the financial system.