Hiking of interest rate unfriendly to manufacturers, says MAN

The Manufacturers Association of Nigeria (MAN) has raised concerns over the recent increment of the benchmark interest rate by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), saying it is not friendly to the real sector.

Reacting to the decision of the MPC to raise the Monetary Policy Rate (MPR) to 13.5% from 11.5% after 20 months of its last adjustment, Segun Ajayi-Kadir, Director-General, MAN, noted in a statement that the increase in MPR has widened the journey farther away from the preferred single digit interest rate regime.

“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.

The association, however, expressed optimism that the apex bank would relax the stringent conditionalities for accessing available development funding windows to improve the flow of long-term loans to the manufacturing sector at a single-digit interest rate.

“The expectation is that MPC will ensure that future adjustments of MPR take into consideration the trend of core inflation rather than basing the decision on the headline and food inflation. This will no doubt shield the sector of the backlashes from the 13.5% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy,” he maintained.

The association listed the implications the hike in interest would have on the economy as follows:

• This is 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
• It will spur an upward review of existing lending rates dependent on obligations of manufacturing concerns, which will drive costs Northward
• Intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds
• Lead to the rising cost of manufacturing inputs, which will naturally translate to higher prices of goods, low sales and an enormous volume of inventory of unsold products
• Exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses
• Further, reduce capacity utilization, and upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained
• Reduce the pace of full recovery of the real sector, make manufacturing performance remain lacklustre and of course, lead to a leaner contribution to the GDP.

The CBN on Tuesday adjusted the Monetary Policy Rate upward by 2% to 13.5% to slow down the racing inflation rate, which accelerated to 16.8% in April.

The MPC however, retained the asymmetric corridor of +100/-700 basis points around the MPR; Cash Reserve Ratio (CRR) at 27.5% and Liquidity Ratio was also retained at 30%.