Interest Rate and Exchange Rate Volatility on the Performance of Industrial Sector in Nigeria

Abstract

The objective of this study is to empirically examine the impact of interest rate and exchange rate volatility on the performance of industrial sector in Nigeria between the periods of 1999 and 2019. Econometric technique of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) Model was employed to analyze the time series data sourced on the aforementioned variables. Findings of this study show that interest rate and exchange rate volatility have significant impact on the performance of the industrial sector. The coefficient of interest rate and exchange rate volatility respectively shows that one percent increase in interest rate and exchange rate volatility respectively will lead to 63% and 3% respectively decline in the performance of the industrial sector. Based on the findings of this study, the following recommendations are made: first, that Nigeria government should engage in stabilization policy targeting on stabilizes the naira currency. This
can be achieve through stable interest rate over a period of time thereby give room to investor to be able to make better investment decision and subsequently improving the performance of industrial sector. second, base on the findings of this study, it is recommended that monetary authority should formulate and implements policy that will result to appreciation of naira currency such as diversification of economy that could result to increase in exportation of domestic goods in order to make naira competitive with international currency, this will help the investor to gain from exchange rate differential and consequently lead to the performance of industrial sectors.