Manufacturers Fault Hike in Monetary Policy Rate

Dike Onwuamaeze

The Manufacturers Association of Nigeria (MAN) has described the recent upward review of the Monetary Policy Rate (MPR) by the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) as unfriendly to the manufacturing sector, saying it would hinder the sector’s economic recovery and performance.

After holding the MPR constant at 11.5 per cent for about two and a half years, the MPC on Tuesday, raised the benchmark interest rate by 150 basis points to 13 per cent in response to global inflationary pressures, which had continued to hurt economies around the world.

But MAN, in a statement issued yesterday, argued that the increase in MPR had widened the journey farther away from the preferred single digit interest rate regime.
“It is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector.

“MAN is, therefore, concerned about the ripple effects of this decision and its implications for the manufacturing sector that is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms,” it added.

The statement signed by the Director General of MAN, Mr. Segun Ajayi-Kadri, also noted, “that the stringent conditions for accessing available development funding windows with the CBN will be relaxed to improve the flow of long-term loans to the manufacturing sector at single digit interest rate.”

Ajayi-Kadir said MAN expected that, “future adjustments of MPR takes into consideration the trend of core inflation rather than basing decision on headline and food inflation.

“This will no doubt shield the sector (manufacturers) per centof the backlashes from the 13.5 per cent MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.”

He said the implications of the latest MPR for the economy and manufacturing sector meant, “another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding out effect on the private sector businesses as firms have lesser access to funds in the credit market.”

MAN also lamented that the recent upward review of the MPR would also spur upward review of existing lending rates and intensify the low demand of manufactured goods by Nigerian consumers whose purchasing power have been, “heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds.”

The association also noted that the increased MPR would, “lead to rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and enormous volume of inventory of unsold products and exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.”

It added that the new rate would, “further reduce capacity utilisation, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained.”

Moreover, it would also, “reduce the pace of full recovery of the real sector, make manufacturing performance to remain lackluster and of course lead to leaner contribution to the GDP.”