The Manufacturers Association of Nigeria has frowned at the raising of the interest rate to 15.5% by the Central Bank of Nigeria’s Monetary Policy Committee on Tuesday September 27, 2022.
This position was contained in a statement signed by MAN’s Director-General, Segun Ajayi-Kadir, a copy of which was made available to our correspondent.
In July, the apex bank raised the Monetary Policy Rate from 13 per cent to 14 percent to tame rising inflation.
The monetary policy rate is the baseline interest rate in an economy, every other interest rate used within an economy is built on it.
Addressing journalists on Tuesday after the committee’s meeting at the CBN headquarters in Abuja, Godwin Emefiele, governor of the apex bank, said 10 members of the committee voted for the rate hike.
The MAN recognised that the CBN by this action was trying to tame inflation but it claimed that it would have dire consequences on the manufacturing sector in the country.
Reeling out the consequences for the economy and manufacturing sector, it noted that the policy would lead increased cost of borrowing by manufacturers, further beyond the extant double-digit rate, which disincentivize new investments in the sector.
The manufacturers added that it would increase factor costs which feed into high product prices, making the manufacturing sector uncompetitive
They also explained that it trigger high product prices, “which makes patronage to plummet and lead to huge inventory of unsold manufactured products in the sector.
“High inventory of manufactured products will trigger reverse effect in the sector as manufacturing capacity utilization, production, employment, profit and tax contribution to national building will decline.
With the prevailing scenario around increase in interest rate and access to funds, MAN noted that tougher times are ahead for the productive sector, because “the increase in MPR from 14% to 15.5% will rub-off negatively on other rates and dash the hope for a single digit lending rate for the productive sector in the economy.”
It stated further that the observed continuous contractionary monetary policy posture without complimentary fiscal support “may not effectively reduce the prevailing inflationary pressure on the economy.
“This is not unconnected with the fact that the current increase in Consumer Price index as reported by NBS is not largely driven by monetary phenomenon, as self-inflicted weak foreign exchange rate management can be linked to the pressure.
“An experiential x-ray of the prevailing economic stance revealed that domestic output gap due to the inefficiency of the macroeconomy, unguided industry development, inclement and high-cost operating environment, exploitative regulatory ecosystem and some externalities are predominantly responsible for the rising inflation that the nation is experiencing.”
MAN advised the CBN to strategically set in motion mechanism for wholistic balancing of the real interest rate, which is critical to investment and not just following leading economies to adjust Interest rate without considering domestic peculiarities.
It argued that Interest rate (MPR), Inflation and Exchange Rate are triadically critical to investment and production, adding that balancing the rates in line with local aspiration is therefore imperative.
However, MAN is hopeful that the CBN will creatively go beyond the conventional monetary management system, because global economic dynamics are changing and conventional measures may no longer be effective.
To get out of the woods, it recommended the upscaling of the current efforts at improving the availability of development-oriented funds at single-digit interest rate, prioritizing industries.
“Promotion of a more robust production centric forex management and intervention in official forex market, leveraging on sustained increase in crude oil price in the global market.”
MAN also urged CBN to give priority attention to meeting forex requirement of the industries to procure vital inputs that are not available locally, to sustain and ramp-up production.
“Intentionally promote monetary and fiscal policy fusion; that is, the Central Bank of Nigerian and the Federal Ministry of Finance, Budget & National Planning should jointly put complimentary measures in place in support of domestic manufacturing.
“Emplace the framework that will facilitate harmonious implementation of relevant policy guidelines aimed at boosting productivity.
“Undoubtedly, the Implementation of these measures will enable industries to remain in business; increase aggregate output; improve contribution to GDP and ensure inclusive and sustainable economic growth,” MAN advised further.
