…reduce the pace of full recovery of the real Sector
The manufacturing Association of Nigeria (MAN) has stated the implications as well as its position on the May 22, 2022 decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).
According to the association, the decision of the committee to increase the Monetary Policy Rate (MPR) has clearly widened the journey farther away from the preferred single digit interest rate regime. It is not manufacturing friendly considering the myriad of binding constraints already limiting the performance of the sector.
It stated that 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, 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 manufacturing group said its 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 of the backlashes from the 13.5% MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.
On the implications of the decision on the economy and the manufacturing sector, it listed as follows:
“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 lendingrates 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.
- olusola Bello