Determinants of Interest Rate : Empirical Evidence from Pakistan

Abstract

The main focus of this research study will be to determine the main factors that influence interest rates and different economic variables that cause interest rate to fluctuate in an economy in short run. Different economic indicators have different impact on interest rates at a different pace. How these indicators respond to different economic situations and to what extent it brings changes in the rate of interest. The two selected and vastly adopted and acceptable indicator for calculating interest rate are CPI and exchange rates. These two variables are used in regression equation to indicate the effect and their influence on our dependent variable i.e. Interest rate, with the help of software SPSS. 6- Years secondary data was taken from SBP and SECP on monthly basis from 2005 to 2010.The positive and a very strong relationship has been found among the variables.

Keywords:KIBOR, CPI, Interest rate, and Inflation