Effect of Interest Rate Fluctuations on the Investment Decisions of Business Firms in Enugu State

Interest rate movements constitute one of the most closely monitored macroeconomic signals for business investment decisions, as the cost of borrowing directly influences the viability of capital projects and the overall appetite for productive investment in both manufacturing and service firms. This study examines the effect of interest rate fluctuations on the investment decisions of business firms in Enugu State, Nigeria. The study is anchored on the Keynesian Investment Theory, which posits that investment is a negative function of the rate of interest, with lower interest rates stimulating higher levels of productive investment. A descriptive survey design was adopted. The population comprised 249 business firms of varying sizes operating in Enugu metropolis. A sample of 154 respondents was selected using stratified random sampling, targeting chief finance officers and managing directors. Data were collected through structured questionnaires and complemented by secondary macroeconomic data from the Central Bank of Nigeria's statistical bulletin. Multiple regression and time series analysis were applied. Findings indicate that a one-percentage-point increase in commercial bank lending rates corresponds with a statistically significant reduction in capital expenditure investment intention, particularly among small and medium-sized firms with limited internal funding capacity. The study further finds that exchange rate uncertainty amplifies the negative investment effects of high interest rates on import-dependent firms. It is concluded that monetary policy calibration significantly shapes the investment climate for business firms in Enugu State. It is recommended that the Central Bank of Nigeria pursue interest rate policies that lower credit costs for productive investment while the Enugu State Government develops alternative concessional financing channels for local firms.

Keywords: Interest rate, investment decisions, Keynesian theory, Enugu State, monetary policy