Abstract

Nigeria entered 2020 with a policy rate of 11.5 per cent, negative real interest rates, a savings-rate floor, a loan-to-deposit directive and a crowded menu of subsidised intervention credit. By 2025 the Central Bank of Nigeria (CBN) had unified the exchange rate, dismantled most direct credit schemes and pushed the Monetary Policy Rate (MPR) to 27.5 per cent before a first cut to 27.0 per cent. This study examined how that shift from a repressed to a market-priced interest rate regime affected investment over 2020 to 2025. Using an ex post facto design, annual data on gross capital formation as a share of GDP, the MPR, bank lending rates and headline inflation were drawn from the CBN, the National Bureau of Statistics and the International Monetary Fund. Descriptive statistics, correlation analysis, ordinary least squares, a regime dummy model and a distributed-lag specification were estimated. The results show that the MPR had a negative and significant effect on investment (β = −0.178, p = 0.043, R² = 0.682): each percentage point rise in the policy rate was associated with a 0.18 point fall in the investment ratio. Average investment was 2.15 points lower in the liberalised regime (2023 to 2025), although the difference was significant only at the 10 per cent level (p = 0.076). Investment responded within the same year rather than with a lag, and the slope flattened from −0.41 to −0.05 after liberalisation, which points to a regime in which non-price constraints dominate. Liberalisation therefore moved interest rates towards market levels, with real rates turning positive only in 2025, but it did not crowd in capital formation within the study window