BusinessDay

CBN rate hike threatens real sector’s recovery – Manufacturers

The Manufacturing Association of Nigeria (MAN) has said the interest rate hike by the Central Bank of Nigeria will reduce the pace of full recovery of the real sector, making manufacturing sector performance to remain lackluster.

The Monetary Policy Committee, on Tuesday, increased the monetary policy rate to 13 percent from 11.5 percent.

MAN in a statement on Thursday that the rate hike would lead to another level of increase in interest rates on loanable funds, which would 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 also 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,” it said.

The association said the rate hike would spur upward review of existing lending rates dependent on obligations of manufacturing concerns, which will drive up costs.

It said it would intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds.

Read also: Naira gains 0.32% after CBN rate hike

According to MAN, the rise in key interest rate will exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.

It said it “further reduces capacity utilisation, upscale the rate of unemployment, incidences of crime and insecurity as the capacity of banks to support production and economic growth is heavily constrained.”

Segun Ajayi-Kadir, director-general at MAN, said the increase in MPR had 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.”

According to him, 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.

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