The umbrella body of manufacturers in Nigeria, the Manufacturers association of Nigeria (M.A.N) says the recent increase in the prime lending rate otherwise known as the Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) is not “manufacturing friendly”.
In a statement M.A.N noted that the latest increase in MPR will worsen the countless binding constraints already limiting the performance of the sector.
“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 upward review of existing lending rates dependent 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” the statement read.
The manufacturers expressed concern that the interest rate hike would lead to rising cost of manufacturing inputs, which will logically translate to higher prices of goods, low sales and huge 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.
“This will further reduce capacity utilization, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained.
“It will 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.” The statement further read.
As part of measures to mitigate the situation, MAN asked the CBN to relax the stringent conditions for accessing available its development funding windows to improve the flow of long-term loans to the manufacturing sector at single digit interest rate.
Going forward, the manufacturers body urged the MPC to ensure that future adjustments of MPR takes into consideration the trend of core inflation rather than basing its decision on headline and food inflation.
“This will no doubt shield the sector from the backlashes from the 14% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy” M.A.N noted.
Recall that the MPC recently decided to deepen its tightening monetary policy stance by increasing MPR from 13% to 14% to check rising inflation in the economy which recently peaked at 18.6%, ensure relative stability, sustain economic growth in the face of the high-level uncertainties in the global economy.
The MPC however, retained the asymmetric corridor of +100/-700 basis points around the MPR; Cash Reserve Ratio (CRR) at 27% and Liquidity Ratio 30%.
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