IMPACT OF INTEREST RATE ON MONEY MARKET INSTRUMENTS IN NIGERIA: 1981 TO 2014

This study is on the impact of interest rate on money market instruments in Nigeria. The major objective of the study is to examine the impact of interest rate on investment decisions in Nigeria with particular focus on money market instruments. The study adopted the ex-post facto research design, and time series data for a period of thirty three-years (1981- 2014).Data was sourced from the Central Bank of Nigeria Statistical Bulletin. Four hypotheses were proposed and tested. The Ordinary Least Square regression and correlation were used to test the hypothesis. The interest rate represented by the treasury bill rate and the monetary policy rate was used as the independent variable while the money market instrument represented by the outstanding of commercial paper and treasury bill was used as the dependent variable. The findings revealed that treasury bills outstanding represented by logtbill shows negative and significant relationship to MPR and positive and significant relationship to TBR. That Commercial Papers outstanding represented by logcp shows negative and significant relationship to TBR and positive and significant relationship to MPR. Also, that a strong positive and significant correlation exists between investment in commercial papers and investment in treasury bills in the Nigerian money market. Finally that a strong positive and significant correlation exists between treasury bill rate and monetary policy rate in the Nigerian money market. It is therefore recommended that appropriate regulation of interest rate be made and strict compliance enforced, with the sole objective of driving investment in the money market. Also, that interest rate should be given more priority in the formulation of monetary policy given its relationship with money market instruments. Treasury Bills and Commercial Papers are chosen for this research work because, they are always in high demand by investors because the treasury bills are government securities while the commercial paper are being offered by blue chip companies. Again, the high interest rate is what motivates investors to put their money on these securities.