Analysis of Exchange Rate and Interest Rate Policy Instruments’ Dynamics on Agricultural Growth in Nigeria

Abstract

This research analyzed the dynamics of exchange rate and interest rate policy instruments on agricultural growth in Nigeria for the period 1980-2018. Specifically the study examined the causal relationship between exchange rate and agricultural growth; analyzed the instantaneous and compound growth rate of exchange rate, interest rate and agricultural growth. and examined the impact of exchange rate and interest rate policy instrument on agricultural growth. Data were obtained from Central Bank of Nigeria (CBN) Statistics Data Base; and Food and Agriculture Organization Statistical data (FAOSTATS). From the findings, There exist a unidirectional relationship between exchange rate and interest rate with agricultural growth (P<0.05). The instantaneous growth rate for agricultural output (P<0.05); exchange rate (P<0.05) and interest rate were 5.9%; 17.02% and 0.61% with compound rate of growth of 6.08%; 18.55% and 0.62%. Exchange rate policy instrument yielded significantly (P<0.05) positive impact of 2.85% while a proportionate rise in interest rate significantly (P<0.05) decreased agricultural growth by -1.83% (P<0.05). Thus, macroeconomic policy instruments dynamics which revolved around aggregate price stability impacted agricultural growth. It was recommended exchange rate should be stabilized and interest reduced to encourage investment in agriculture, hence growth.