Interest Rate and Agricultural Financing in Nigeria

Abstract

This study investigates the influence of interest rate on agricultural financing in Nigeria, focusing on the availability of agricultural credit over the past three decades (1981 to 2021). The study employs unit root tests to confirm data stationarity and utilizes an Ordinary Least Squares (OLS) regression model to analyze the effects of exchange rates (EXRATE), agricultural credit (AGCR), and interest rates (INTRATE) on agricultural commodity (AGCOM) performance Using secondary datasets from the Nigerian economy, the analysis reveals that both the EXRATE and INTRATE significantly affect AGCOM, aligning with economic theories that predict their impact on agricultural finance. However, contrary to expectations, AGCR does not show the anticipated positive effect. This suggests that there is a lack of alignment between credit availability and expected outcomes in the agricultural sector. The findings highlight the complexity of agricultural financing under interest rate deregulation policies, indicating that simple adjustments in interest rates alone may not suffice to enhance agricultural productivity. The study recommends cautious implementation of interest rate policies, considering the multifaceted dynamics that influence agricultural commodity performance in Nigeria. This study contributes to understanding the nuanced impacts of macroeconomic policies on agricultural finance, serving as a resource for policy makers aiming to optimize agricultural productivity through informed economic strategies.