The increase in MPR from 18% to 18.5% will certainly lead to an increase in lending rates and worsen the uncompetitiveness of the manufacturing sector. The Association has been clamoring for single-digit lending rates to allow manufacturers access needed funds to boost the performance of the sector. This increase, like the previous ones, is evidence that the CBN is either unperturbed about the plight of the productive sector or is unable to fathom out a more creative policy mix that would reflate the sector.
The Manufacturers Association of Nigeria, MAN, stated the above while reacting to the increase of MPR by the Monetary Policy Committee of the Central Bank of Nigeria, CBN,
Speaking through the Director General, MAN, Segun Ajayi-Kadir, the asscoation said, “We are persuaded that monetary authority is oblivious of the fact that the failure of its tightening policy to address the inflationary pressure is because the hike in inflation is largely caused by a combination of familiar challenges, including low output which is attributed to instability of macroeconomic variables, inconsistent and lackluster fiscal policy regime, incoherent industrial policies, challenging and expensive operating environment, exploitative regulation, external shocks and poor exchange rate management”.
“Therefore, there is a need to address the identified root causes of inflation and refrain from intensifying policy choices that hamper the performance of the real sectors of the economy”, added the DG.
The Association therefore recommended that the interrelationship among macroeconomic variables is essential in policy formulation, as the movements of interest rate, inflation rate and exchange rate have direct impact on investment, employment and output of any economy.
According to the conventional monetary framework that was adopted by the CBN, increase in MPR should increase interest rate and by extension attract financial investment. “However, it will also increase the cost of borrowing, crowd out more investments in the real sector and lower the output of the manufacturing sector”, stated Ajayi-Kadir.
“Therefore, it is necessary for government to think outside the conventional monetary policy framework and take pragmatic steps to quell the inflationary pressure and reposition the economy”, stressed the DG.
MAN listed its recommendation to include: as the cost of lending from the Commercial Banks is expected to increase with the increase in MPR, it is important that priority attention should be given to improving the size of the available special funding windows and making them accessible to the industries at liberal conditionality.
“The Federal Ministry of Finance, Budget and National Planning and the Central Bank of Nigeria should collaborate to develop an implementable, non-contradictory and well-synthesized monetary and fiscal policy that support domestic manufacturing and the productive sector in general. By doing this, the supply of goods and local production will increase relative to current demand thereby improving aggregate output”, maintained Ajayi-Kadir.
“Immediate and concrete action should be taken to address the manufacturers’ forex needs in order to support and sustain production. There is no doubt that prioritizing allocation of forex to the manufacturing sector to procure raw materials, machines and spare parts that are not available locally is the way to go”, stated the Association.
“Implement strategies to encourage local raw material development and procurement, enhance infrastructure development, obviate prohibitive electricity tariffs, and increase productivity in key industries like manufacturing.
Tackle smuggling and insecurity by stepping up capacity building and providing sufficient security equipment and technology for monitoring and intelligence gathering”, revealed the DG.