MAN Highlights How CBN’s Decision Constrain Banks’ Capacity to lend to the Productive Sector

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The recent decisions made by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) during its 294th meeting held on March 25-26, 2024, have sparked concerns within the manufacturing sector, according to Segun Ajayi-Kadir, the Director-General of the Manufacturers Association of Nigeria (MAN).





Ajayi-Kadir highlighted that the Nigerian economy has been grappling with challenges such as foreign exchange instability, escalated energy prices, and food insecurity, all of which have negatively impacted the manufacturing sector. Despite these challenges, the MPC decided to further tighten monetary policy by raising the Monetary Policy Rate (MPR) by 200 basis points to 24.75%, adjusting the asymmetric corridor around the MPR, and retaining other key monetary policy parameters.





The implications of these decisions for the manufacturing sector are profound. Ajayi-Kadir noted that the increased cost of loans and limited access to credit will hinder manufacturing competitiveness and disrupt the manufacturing value chain. Furthermore, the narrowing of the asymmetric corridor and the increase in the Cash Reserve Ratio (CRR) for Merchant Banks will further constrain banks’ capacity to lend to the productive sector, including manufacturing.





The MAN expressed concern over the negative impact of these decisions on the manufacturing sector’s ability to contribute meaningfully to economic growth, employment generation, and forex proceeds inflow. Ajayi-Kadir emphasized that the current approach of tightening monetary policy has been in place for almost two years without yielding positive results, urging the CBN to explore alternative measures to address the underlying causes of inflation and exchange rate instability.





In light of these concerns, the MAN recommended a collaborative approach between monetary and fiscal authorities to support the manufacturing sector. Key policy measures suggested by the association include ensuring adequate security in farming areas and business environments, stabilizing the value of the naira, prioritizing forex and credit allocation to manufacturers, promoting local sourcing and backward integration, and investing in infrastructure and renewable energy.





The MAN called for a careful consideration of the impact of monetary policy decisions on the manufacturing sector and urged the CBN to adopt measures that would support the sector’s growth and sustainability while addressing macroeconomic challenges.

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