The organised private sector (OPS) has described the decision of the Central Bank of Nigeria to raise its benchmark interest rate and the cash reserve ratio (CRR) as detrimental to the manufacturing sector and the economy in general.
The Monetary Policy Committee of the CBN had on Tuesday increased the monetary policy rate (MPC) to 15.5 percent from 14 percent and the CRR to 32.5 percent from 27.5 percent.
This decision of the MPC was taken in consideration of the persistent rise in inflation rate and fragile growth of the economy.
The OPS, comprising of the Manufacturers Association of Nigeria (MAN), Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), and the Lagos Chamber of Commerce and Industry (LCCI), unanimously said the decisions would cause a plethora of problems for businesses in the economy.
Segun Ajayi-Kadir, director-general of MAN, said that this decision will further reduce the chances of making the sector competitive as manufacturers would be forced to further increase prices of their products after suffering higher production and operational cost.
“Manufacturers cost of borrowing will increase further beyond the extant double-digit rate, which disincentivise new investments in the sector, also high product prices will lead to huge inventory of unsold manufactured products and will trigger decline in manufacturing capacity utilization, production, employment, profit and tax contribution to national building,” he said.
Ajayi-Kadir added that the observed continuous contractionary monetary policy posture without complimentary fiscal support may not effectively reduce the prevailing inflationary pressure on the economy.
According to him, issues around insecurity, government’s excessive drive for internally generated revenue, increase in interest rate in the US, acute shortage of foreign exchange and unfriendly exchange rates are fuelling inflation and seriously depressing industrial production.
MAN recommended that a framework that will facilitate harmonious implementation of relevant policy guidelines aimed at boosting productivity is implemented while finance related agencies of the government promote monetary and fiscal policy fusion to support domestic manufacturing.
“Efforts at improving the availability of development-oriented funds at single digit interest rate must improve while priority attention must be given to industries’ forex requirement in order to get vital inputs that are not available locally, sustain and ramp-up production,” he said.
NACCIMA said in a statement that raising interest rates is unidirectional and would negatively affect both businesses and individuals, adding that relying just on monetary policy to restrain its unabated growth may be ineffective, as opposed to producing the desired outcome.
The association added that the survival of Micro, Small and Medium scale Enterprises is already threatened by the rising costs of capital and production, adding that with higher interest rates, it would be more challenging for businesses to repay their loans.
NACCIMA said three significant rate hikes within five months is devastating on the manufacturing sector and asked that Nigeria tread carefully on the path of business closures, rising inflation, high unemployment, and slow/stagnant economic growth.
“The encouraging approach to reduce the current rate of inflation is to conduct a comprehensive analysis of all the causes contributing to the inflation’s rising trend and to implement control measures that can halt their effects,” NACCIMA said.
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Chinyere Almona, director-general at LCCI, said in a statement that aggressive policy rate hikes in response to increasing inflationary pressures may trigger a rise in unemployment, a recession, and an increase in public and corporate debt.
She noted that LCCI has consistently advocated for a more friendly policy/business environment that will attract both foreign and domestic investment and improve productivity (particularly domestic food production).
“Urgent action should focus on boosting oil production and ensure better coordination of fiscal policies as alternative measures, also policies should focus on addressing multiple exchange rates, improving power supply, tackle worsening insecurity, and incentivize alternative energy sources,” she added.
