The group under aegis of Manufacturers Association of Nigeria (MAN) in the preliminary position of Man as it regards to “Decision of The Monetary Policy Committee (MPC) Of the Central Bank of Nigeria for the month of July 19, 2022,”
The manufacturing sector representative, Segun Ajayi-Kadir, Director General of Manufacturers Association of Nigeria (MAN) saying Clearly, the increase in MPR has widened the journey farther away from the preferred single digit interest rate regime.
In a statement sent to The Ameh News (TAN) saying Ajayi-Kadir stated that the MPC decision is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector.
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.
Consequently, Ajayi-Kadir said 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.
In his words: The expectation 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;
The report further stated that In response to the domestic economic conditions in Q2 2022 and other economic realities, especially those associated with the prevailing international financial and economic environment, the Monetary Policy Committee (MPC) recently reviewed its previous decisions. The Committee decided to deepened its contractionary monetary policy stance by increasing the Monetary Policy Rate (MPR) to 14% from 13%, which was fixed in May 2022, he added.
“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%.
The MAN DG pointed out that Implications for the economy and manufacturing sector for upscaling the MPR stems:
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.