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Published On: Sun, Sep 17th, 2017

Stakeholders pressure for interest rate reduction as MPC meets


Manufacturers, haunted by falling operating margins, have made strident calls for the Central Bank of Nigeria (CBN) to immediately reduce local interest rates. The plaintive appeal is coming on the sidelines of the CBN’s monetary policy committee (MPC) meeting for the month of September 2017. According to results of a 2017 Manufacturing Sector Survey conducted by NOI Polls and Centre for the Study of Economies of Africa (CSEA), which was released last week, the clamour for the scaling down of interest rate has been on an upswing as CBN holds its meeting on Monday and Tuesday in Abuja.

Private sector operators said it was critical for the Committee to reduce the monetary policy rate from 14 per cent to between 10 and 12 per cent as a way of stimulating economic recovery, following the country’s recent exit from recession at the end of the second quarter of the year.

The result of the 2017 manufacturing Sector Survey indicated that 85 per cent of the 496 manufacturing companies interviewed between February and May 2017 across the six geo-political zones of Nigeria, were operating below 75 per cent of their installed capacities. And 45 per cent of them claimed that limited access to credits was one of the major contributors to the unfavourable business climate in the country. According to the survey, 74 per cent of the manufacturing companies said the business environment has been unsupportive in 2017 against 60 per cent who made the same assertion in the corresponding period of 2016. Larger percentage of the interviewees (55 percent) believed unfavourable foreign exchange rate and bad road made the operating environment harsher for them, while 47 per cent stated that it was unavailability of fuel that worsened the business climate during this period.

The loan portfolios of many commercial lenders declined in H1 2017, because many manufacturers and SMEs shied away from obtaining credits due to lack of access and high cost of funds in the country, said Dr Vincent Nwani, Director, Research and Advocacy, Lagos Chamber of Commerce and industry (LCCI) in a telephone conversation with Business Hallmark. “We hope the MPC will use the National Bureau of Statistics (NBS) report which says we are out of recession and we can only grow a little as a baseline and factor it into their decision. And the only way is to moderate monetary aggregates not only Monetary Policy Rate (MPR).

“We believe it is time for the private sector to return to the banking hall to collect loans, that is the only way we will have confidence that the monetary authorities are not working at variance with other stakeholders to move the country towards economic recovery, ” he added.

The CBN has pegged benchmark interest rate at 14 per cent since July 25, 2017 due to rising inflation, which hit 18.72 per cent in January 2017 highest since September 2005, but has slowed to 16.01 per cent in August, according to the latest Consumer Purchase Index data, which the country’s statistics agency released on Friday.

Private sector credit in Nigeria increased 0.88 per cent toN22.17 trillion in July from N21.98 trillion in June 2017, having reached anall-time high of N23.07 trillion in October of 2016 and a record low of NGN440.87 billion in January of 2000.

Professor Leo Ukpong, dean, School of Business, University of Uyo and a financial economist, noted that though Nigerian core inflation rate which accelerated while the economy was contracting, which was an unusual trend, since the country has returned to growth, it was expected that the CBN would lower its interest rate benchmark. “I believe the committee should drop interest rate, even if it just 50 basis points. If you look at it historically, they would probably retain the rates, but that would be a bad policy,” he argued.

In the same vein, Dr Adi Bongo, Faculty member, Lagos Business School, explained that the country’s inflationary trend was the backlash of government policies, not due to increased money supply. He asserted that the government has left interest rate very high to attract investors to subscribe to its treasury bills and bonds, which it has been issuing continuously to enable it fund capital projects since price of crude oil, which is the major source of government revenue, has been down, though it appreciated to $55.70 last Friday. The government has been issuing treasury bills and bonds at the rate of between 10-18 per cent, which has encouraged commercial lenders to reduce their loan risk appetite and embrace the fixed income market, thereby denying the real sector credits.

“Companies margin is about 10 per cent; there was no way they would be able to borrow as high as 25 per cent. They can’t cover their costs let alone make profit. This is the real challenge confronting the real sector. This is why Non-performing loan has been increasing.

“May be CBN has to find a way of tempering with rate, but right now I don’t see them doing anything, especially now the NBS has said that the economy has turnaround by 0.55 per cent growth. They may likely continue in the same rationale. So, I don’t see it changing rates,” the economist opined.

Mr Robert Omotunde, financial analyst, Afrinvest West Africa limited told Business that the economy is very fragile, MPC is more likely to maintain status quo with regards to monetary aggregate rates, because the economy is just beginning to grow against after contraction in five consecutive quarters. “It will be too soon to reduce interest rate. More so, the CBN is pursuing tightening monetary objectives,” he claimed.

Mr Andrew Esene, analyst, Futureview Financial Services limited also argued that the MPC would use the meeting to further appraise the Nigerian Autonomous Foreign Exchange window, which was introduced in April and review the Q2 Gross Domestic Product (GDP) report recently released by the NBS. “Call for the reduction of MPR won’t be visible at this time, because of the threat increase liquidity may pose on the naira,” he reasoned.

Meanwhile, Foreign Trade in Goods Statistics for Q2 2017 showed that the country’s total imports value was 13.51 per cent higher to N2.6 trillion in Q2 2017 than Q1 2017 and 9.97 per cent higher than Q2 2016. But Nigeria’s total export value increased 3.2 per cent to N3.10 trillion in Q2, 2017 compared Q1 2017 and 73.48 per cent better than Q1 2016.

Nigerians imported 16.01 per cent more agricultural goods in Q2 2017 than in Q12017 and 61.02 per cent higher than Q 2 2016. The country’s raw material exports value, however, increased by 31.8 per cent in Q2 2017 against the level in Q1 2017 but 206.4 per cent higher than Q2 2016.

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