The Manufacturers Association of Nigeria and the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture have warned the Central Bank of Nigeria,CBN, that the recent increase in base lending rate will trigger higher prices of products.
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In a statement signed by its Director-General, Segun Ajayi-Kadir, MAN said the increase in the Monetary Policy Rate and the Cash Reserve Ratio portended worrisome negative consequences for the manufacturing sector.
According to the statement, in consideration of the prevailing scenario around increase in interest rate and access to funds, tougher times were ahead for the productive sector.
The group noted that the increase in MPR from 14 per cent to 15.5 per cent would rub off negatively on other rates and dash the hope for a single-digit lending rate for the productive sector of the economy.
The apex association of manufacturers also said that the recent development would lead to increased cost of borrowing by manufacturers, further beyond the double-digit rate, which would disincentivise new investments in the sector.
The statement read in part, “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.”
Also, MAN said the rate hike would cause increased factor costs which fed into high product prices, making the sector uncompetitive.
The association also hinted that the spiral effect of the CBN’s decision to raise benchmark borrowing rate would lead to attendant job losses, thereby exacerbating the nation’s already worrisome unemployment statistics.
MAN said it was hopeful that the CBN would creatively go beyond the conventional monetary management system, because global economic dynamics were changing and conventional measures might no longer be effective.
The statement further read, “It is important that the monetary authority strategically set in motion mechanism for holistic 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.”
