The The Manufacturers Association of Nigeria has warned that the recent increase in the base lending rate by the Monetary Policy Committee of the Central Bank of Nigeria will lead to higher commodity prices among other negative consequences.
MAN said so in a statement titled “MAN’s Preliminary Position on the 19 July 2022 Decision of the Monetary Policy Committee of the Central Bank of Nigeria”.
The group said this was another level of increase in interest rates on loanable funds, which would increase the intensity of the crowding-out effect on private sector companies, as companies had less access to funds on the credit market.
According to the statement, the rate hike, among other biting consequences, “would intensify the demand crisis emanating from the severely eroded disposable income of Nigerians, limiting the access of households and individuals to cheap funds.”
He said the situation will also lead to “an increase in the cost of manufacturing inputs, which will naturally result in higher commodity prices, low sales and a huge inventory of unsold products.”
The statement further read: “MAN is therefore concerned about the ripple effects of this decision and its implications for the manufacturing sector which is visibly struggling to survive the many strangling fiscal and monetary policy measures and reforms.
“Therefore, manufacturers are hoping that the strict conditions for accessing the development finance windows available with the CBN will be relaxed to improve the flow of long-term loans to the manufacturing sector at a single-digit interest rate.”
Speaking in an exclusive interview with the punch, an Onabisi Onabanjo University economist, Professor Sheriffdeen, said higher prices were inevitable in light of the recent rate hike by the CBN.
He added that the apex bank’s rationale for raising the lending rate due to rising inflation was economically flawed.
He said: “Rising rates will cause prices to rise because it means the cost of borrowing money for businesses has gone up. Even if they don’t borrow, this signal indicates that when they want to borrow, they will pay more. So, inevitably, the price will increase and this is in addition to the fact that there is already an increase in the price of energy, that is to say electricity in addition to fuel.
“The increase resulting from the depreciation of the naira because we import a lot of things also means higher prices. The third is the fact that the Federal Government has borrowed from the Central Bank and that is inflationary in itself. So, given those three things, they’ve pushed the prices up and there’s a general increase in prices around the world because of the war in Ukraine and Russia, so all of that has pushed up the prices. central should look at that and say, “we don’t want to raise rates,” but it says it wants to curb inflation as if that inflation is caused by more money in the economy. It is caused by other things, so, certainly, the increase in tariffs will further increase the price level.