The Manufacturers Association of Nigeria (MAN) described the decision to raise the monetary policy rate (MPR) from 13% to 14%, as a trip further away from the preferred single-digit interest rate regime.
MAN Chief Executive Mr Segun Ajayi-Kadir in a report released Friday in Lagos said the development was not favorable to manufacturing, given the myriad of binding constraints already limiting the performance of the sector.
The News Agency of Nigeria reports that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has revised the MPR upwards by one percent in response to Nigeria’s economic realities.
However, the MPC kept the asymmetric corridor of +100-700 basis points around the MPR; Cash Reserve Ratio (CRR) at 27% and Liquidity Ratio at 30%.
Ajayi-Kadir expressed hope that the strict conditions for accessing the development finance windows available with the CBN would be relaxed to improve the flow of long-term loans to the manufacturing sector at a single-digit interest rate.
DG MAN urged the MPC, in future adjustments to the MPR, to take into consideration the underlying inflation trend rather than basing its decision on headline and food inflation.
This, he said, would protect the sector from the backlash of the 14% TPM, increase production and ensure sustained growth in the overall best interest of the economy.
“This is another level of increase in interest rates on loanable funds, which will undoubtedly increase the intensity of the crowding-out effect on private sector companies, as companies have less access to funds on the credit market.
“This will stimulate the upward revision of existing lending rates, which will drive costs north, intensify the demand crisis, increase manufacturing costs, exacerbate idle capital intensity and reduce capacity utilization. .
“MAN firmly believes that high inflation is a major indication of macroeconomic shortcomings and failure to take action to address the contributing factors will further limit economic growth and increase the unemployment rate in the country.
“The MPC should, in future adjustments to the MPR, take into consideration the underlying inflation trend rather than basing its decision on headline and food inflation,” he said.
Addressing the June inflation figure of 18.6 percent, Ajayi-Kadir said the rate which had taken an upward swing, signaled a worsening economic situation ahead.
According to the National Bureau of Statistics (NBS), factors responsible for the spike in headline inflation include rising prices for gas, liquid fuels, solid fuels, clothing, road transport, cleaning, clothing repair and rental.
Others are air travel, meat, bread, cereals, fish, potatoes, oil, fat, wine, yams and other tubers.
Ajayi-Kadir said a quick review of the report revealed that the 18.6% rate portends a gradual journey towards the peak inflation rate of 18.72% recorded in January 2017.
He said this worrying acceleration should be halted as the socio-political and economic activities that triggered the surge in inflation were imminent.
“Scarcity of fuel, depreciation of the naira and continued growth in broad money supply, in addition to the familiar triggers of inflation, have pushed up Nigeria’s June rate.
“Specifically, the price of diesel has gone up about 230% over the last year.
“Amid rising oil prices, the budget authority strategically reduced the Federation Accounts Allocation Committee (FAAC) payment in May by approximately 9.51%, representing a reduction of 62 .4 trillion naira, which ideally should have reduced inflationary pressure to some extent.
“However, the CBN’s expansionary policy, which influenced broad money growth by 25.51 percent over the past twelve months, fueled inflation,” he said.
Ajayi-Kadir instructed the government to roll out a package of supply-side policies with more structural measures to tackle particular inflationary pressures from insecurity, energy and transport costs to avoid spillover effects of high inflation.
He said the government should further reduce the country’s dependence on imported products and raw materials by encouraging local sourcing through a comprehensive and integrated incentive system.
MAN DG added that all foreign exchange related challenges faced by the productive sector should be intentionally addressed by taking a detour through the CBN foreign exchange regime which greatly contradicts one of the objectives of the National Development Plan.
“Sustained efforts must be made to improve infrastructure development and accelerate the process to ensure sustainable local refining of petroleum products by reactivating those currently idle, support the commissioning of the Dangote refinery and issue licenses for new refineries.
“The oil and gas industry must be strategically positioned to take maximum advantage of future global supply disruptions that trigger an increase in the price of crude oil,” he said.