European Journal of Research and Reflection in Management Sciences Vol. 4 No. 2, 2016 ISSN 2056-5992 Progressive Academic Publishing, UK Page 16 www.idpublications.org TOWARDS A GRADUAL APPROACH TO LIBERALIZE INTEREST RATE: HOW THIS PROCESS IS BENEFICIAL ON CREDIT ALLOCATION AND INVESTMENT? Benhabib Abderrezak & Mostéfaoui Sofiane & Prof. Yousfat Ali University of Adrar, ALGERIA ABSTRACT One of the many indicators that conduct the investment decision is the interest rate. The latter has been generally defined via different channels of conception. The financial conception states that interest rate is the time value of money or the reward to put aside your money in attempt to get revenue in the future. The economic conception means that the interest rate is a proxy showing how well the credit allocation mechanism and the mobilization of financial resources are. In this context two mechanisms are adopted: the economic mechanism and the official one. The former considers the movements of the interest rates as conducive to the various investment decisions (independent variable) while the second view regards the interest rate as dependant variable following the investment behavior (dependant variable). This paper sheds light on the venues through which the difference between the deposit and lending interest rates impact the investment decision via credit allocation mechanism. Keywords: Interest rate, deposit rate, lending rate, investment. INTRODUCTION The philosophy of credit allocation refers to the meaning of rationality and choice earlier laid down by philosophers of political economy. In this sense, credit is an economic item exploited in an attempt to satisfy a want. Therefore, the rationality implies the good direction of this mean towards its best uses. The economic theory suggests that individuals need to maximize the benefits from the usage of their credits, the fact that enhances these agents to expand their economic activities by a recurrent incentive (the psychological incentive of doing business). Investment is one of the important determinants of growth and prosperity. It generates value added, technology and realizes the social welfare by decreasing the unemployment rate and achieving the social harmony. The conception resides in mapping the ways on which the economy attains the high levels of investment both in terms of quality (allocation paradigm) and quantity (efficiency paradigm). In this context, interest rate plays a major role in determining the magnitude of the investment decision because it is the capital driver of the financial resource needed to engage in business activities. Herein there is a controversy about managing the interest rate in such a way that increases at maximum the benefits of its manipulation strategy. The issue is to determine the behavior wanted of the interest rate whether to liberalize it or to fix it. The purpose of all this is to find out the optimal interest rate that directs the financial resources towards their best allocation which implicitly mean a high degree of investment benefits. Interest rate and investment: ways of transmission The relationship between investment and investment is a fertile groundwork for research and investigation both at micro or macro levels. Macroeconomics considers that the investment volume decreases with the increase of the interest rate. The reason behind this is that the interest rate is a cost of borrowed funds necessary for doing investments and as the costs