MAN Urges CBN to Relax Stringent Conditionalities, Improve Flow of Long-Term Loans to Sector

The Manufacturers Association of Nigeria (MAN) said that the recent increase in Monetary Policy Rate (MPR) has widened the journey farther away from the preferred single digit interest rate regime with severe implications for the economy and manufacturing sector.

Segun Ajayi-Kadir, mni, Director General, MAN in a statement highlighted that the CBN in response to the domestic economic conditions in Q1 2022 and other related challenges, especially those associated with the prevailing international financial and economic environment, through the Monetary Policy Committee (MPC) recently reviewed its previous decisions. The Committee decided to deepenits contractionary monetary policy stance by increasing the Monetary Policy Rate (MPR) to 13.5% from11.5%, which was fixed since September 2020.

The Monetary Policy Committee (MPC) noted that the key rationale for upscaling the MPR stems from the need to curb the rising rate of inflation that recently peaked at 16.8%, ensure relative stability, and 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 27.5% and Liquidity Ratio was also retained at 30%.

Ajayi-Kadir posited that the Committee decision to deepen its contractionary monetary policy stance by increasing the Monetary Policy Rate (MPR) to 13.5% from11.5%, which was fixed since September 2020 has implications for the economy and manufacturing sector.

According to the statement, 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.

According to DG MAN, “It will spur 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 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.”

Director General, MAN explained that the position of MAN on this development is that clearly, the increase in MPR has widened the journey farther away from the preferred single digit interest rate regime, adding that it is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector.

MAN, he said, 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.

Consequently,  he noted that manufacturers are hopeful 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 is that MPC will ensure that future adjustments of MPR takes into consideration the trend of core inflation rather than basing decisions on 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 added.