@ ABFRJ | Available @ www.abfrjournal.com | Volume –20 | Issue – 4| March 2025 | Pages 66 -81 66 African Banking and Finance Review Journal (ABFRJ) International Open Access Journal | www.abfrjournal.com ………………………………………………………………… | Volume - 20 Issue – 4| March 2025 Dynamics of Exchange Rate on Inflation and Interest Rate in Nigeria; A Robust Least Square (RLS) Approach By 1 ANACHEDO, CHIMA KENNETH ck.anachedo@unizik.edu.ng 2 NWANNA, IFEANYI ONYENWE (PhD) io.nwanna@unizik.edu.ng 3 Jeff-ANYENEH SARAH ELECHI (PhD) se.jeffanyeneh@unizik.edu.ng 1,2&3 Department of Banking and Finance, Nnamdi Azikiwe University, Awka, Nigeria. ABSTRACT This work examines Exchange rate as a pivotal macroeconomic variable used as a parameter for determining international competitiveness and it serves as an indicator of competitiveness for any country’s currency, but majorly to explore the effect of exchange rate changes on inflation rates and to ascertain the effect of exchange rate fluctuations on interest rates. The study employed ex-post facto design, data spanning from 1986-2023 was gotten from the CBN statistical bulletin and the study employed the Robust Least Square model, alongside other econometric tools, like the, Jarque-Bera statistic and Augmented Dickey fuller, in testing the following variables, exchange rate, inflation rate and interest rate. The findings revealed that Exchange rate changes does have a significantly positive effect on inflation and a significant negative effect on interest rate in Nigeria. It was based on this findings that the following recommendations were made; Policies should focus on increasing domestic agricultural production, improving food security, and addressing insecurity to reduce external inflationary pressures and the government and central bank should work on stabilizing the currency, as excessive depreciation can lead to imported inflation. Interventions should aim at preventing excessive volatility while providing an environment for gradual exchange rate adjustment based on market fundamentals. Keywords: Exchange rate, Inflation rate, interest rate, Macroeconomic variables, currency. 1. INTRODUCTION Exchange rate instability is a fundamental issue prevalent in many developing economies, such as Nigeria. This instability results in significant uncertainty regarding the primary monetary policy