This paper seeks to investigate interest rate and private sector investment relationship in Nigeria. The theoretical framework is based on Keynesian and Monetarists views which dominate the debate on whether changes in interest rates have an impact on investment. Stratified random samplings as well as simple random sampling methods were used for collecting data from enterprises in Jos the capital of Plateau state. The use of these methods of sampling was to ensure that the enterprises fall into the small, medium as they were randomly selected from the 3 local government areas of Jos town. With help of descriptive statistics, tables and graphical illustrations, the data derived were critically analyzed. Chi-square technique was used to test the hypothesis postulated. The implication of the result is that high interest rate crowds-out (reduces) private sector small and medium scale investment. Hence, it is therefore recommends that Nigerian government should encourage banks to set aside a reasonable percent of their annual profits before tax as soft loans to Small and Medium Enterprises at a very low interest rate. At the same time, it should intensify its efforts to establish the zero interest rate banking institutions with the full fledge Islamic ethic in operation such that it will benefit Small and Medium Enterprises operators and the procedure should be eligible enough for SMEs to enjoy the stress-free financing mode irrespective of one’s religious affiliation.
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