MAN, Tasks CBN To Relax Access to Long -Term Loans at Single Digit Interest Rate

The Manufacturers Association of Nigeria (MAN) has taken a swipe at the decision of the Monetary Policy Committee (MPC) as the Committee recently reviewed its previous decisions to deepened its contractionary monetary policy stance by increasing the Monetary Policy Rate (MPR) to 14% from 13%, which was fixed in May 2022.

According to the MPC, its decision is in response to the domestic economic conditions in second quarter (Q2) 2022 and other economic realities, especially those associated   with the prevailing international financial and economic environment.

The Committee stated that “The key rationale for upscaling the MPR stems from the need to curb the rising rate of inflation that 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 was also retained at 30%.”

However, the Director General, MAN, Mr Segun Ajayi-Kadir, mni issued a statement on the preliminary position of MAN based on the MPC decision and outlined the implications for the economy and manufacturing sector.

The MAN’s statement read in part: “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.

“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.

“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, 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 to remain lackluster and of course lead to leaner contribution to the GDP.”

Consequently, the Association highlighted in clear terms that the increase in MPR has widened the journey farther away from the preferred single digit interest rate regime, stressing that it is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector.

MAN, also expressed concern 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 manufacturers, however, expressed their optimism that the stringent conditionalities 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.

The expectation, according to the association, is that MPC will ensure 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 from the backlashes from the 14% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy,” MAN added.