The Manufacturers Association of Nigeria (MAN) has said the hike in the monetary policy rate (MPR) by the Central Bank of Nigeria (CBN) to 13 percent is not good for manufacturers.
On Tuesday, the CBN monetary committee increased MPR to 13 percent after retaining the interest rate at 11.5 percent for over two years.
The increase of 150 basis points was also the first time CBN would hike rates in six years.
CBN said the decision was to tame rising inflation.
But the Director-General of MAN, Segun Ajayi- Kadir, said in a statement issued on Thursday, that the new MPR meant another level of increase in interest rates on loanable funds, making it tight for private businesses to access funds in the credit market.
According to him, the development is not manufacturing-friendly considering the myriad of constraints already limiting the performance of the sector.
“In response to the domestic economic conditions in Q1 2022 and other related challenges, especially those associated with the prevailing international financial and economic environment, the monetary policy committee (MPC) recently reviewed its previous decisions,” he said.
“The committee decided to deepen its contractionary monetary policy stance by increasing the monetary policy rate (MPR) to 13.5 percent from 11.5 percent which was fixed in September 2020.
“The key rationale for upscaling the MPR stems from the need to curb the rising rate of inflation that recently peaked at 16.8 percent, ensure relative stability, and sustain economic growth in the face of the high-level uncertainties in the global economy.
“However, the development is expected to intensify demand crunch, increase the cost of manufacturing inputs, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.
“It would further reduce capacity utilisation, upscale the rate of unemployment, insecurity and reduce the pace of full recovery of the real sector, making manufacturing performance remain lacklustre and lead to a leaner contribution to the GDP.”
Ajayi-Kadir said the CBN should ensure that future adjustments of MPR take into consideration the trend of core inflation.
He added that deliberate considerations would build up production and guarantee sustained growth in the overall best interest of the economy.
“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,” he said.