By Merit Ibe                                               [email protected] 

The Organised Private Sector (OPS), has again warned that the continuous hike in the monetary policy rate is an additional burden on businesses as it will result in spike of credit.

This is the sixth  time the CBN would increase the interest rate despite manufacturers and stakeholders advice.

The Monetary Policy Committee of the Central Bank of Nigeria announced the 50 basis point raise in interest rate to 18 per cent on Tuesday.

CBN Governor, Godwin Emefiele, disclosed this while reading the communiqué after the second MPC meeting of the year .

In January, the MPC raised its benchmark lending rate from 16.5 percent to 17.5 percent in a sustained push to control inflation and ease pressure on the naira.

Amid the uncertainties being faced by Nigerians with the scarcity of the redesigned Naira notes, the nation’s inflation rate rose to 21.91 percent in February compared to 21.82 per cent in January.

According to the National Bureau of Statistics, the February inflation rate showed an increase of 0.09 percent points when compared to January’s headline inflation rate.

Emefiele said the apex bank’s tightening measures had started to address inflationary pressure.

But reacting to the rate hike,  Director General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir,  maintaned that  the  increase in MPR has widened the journey farther away from the preferred single digit interest rate regime and would lead to leaner contribution to the gross domestic    (GDP).

He pointed out that considering the myriad of constraints already limiting the performance of the sector, the increase was not favourable to manufacturers.

“The association is concerned about the ripple effects of the decision and its implications for the manufacturing sector that is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms.

“It portends another level of increase in interest rates on loanable funds, which will no doubt upscale the intensity of the crowding out effect on the private sector businesses as firms have lesser access to funds in the credit market.

Ajayi-Kadir viewed that the increase  will spur upward review of existing lending rates dependent obligations of manufacturing concerns, which will drive costs Northward, intensify demand crunch emanating from the heavily eroded disposable income of Nigerians, constrained access of households and individuals to cheap funds.

“It will 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.

“Exacerbate the intensity of idle capital assets, worsen the already declining profit margin of private businesses and heighten the mortality rate of small businesses.

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“Further reduce 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.

“Reduce the pace of full recovery of the real sector, make manufacturing performance to remain lacklustre and of course lead to leaner contribution to the GDP.

The DG is  hopeful that the stringent conditions for accessing available development funding windows with the CBN by manufacturers will be relaxed to improve the flow of long-term loans to the sector at single digit interest rate.  He expects that MPC will ensure that future adjustments of MPR takes into consideration the trend of core inflation rather than basing decision on headline and food inflation.

“This will no doubt shield the sector of the backlashes from the increase MPR, ramp up production and guarantee sustained growth in the overall best interest of the economy.”

Director, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, is of the view that  the continuous hike in the monetary policy rate is an additional burden on businesses, saying the victims are the  investors in the real economy and other entrepreneurs.

Yusuf, who noted that  production costs would increase,  sales will drop,  profit margins will shrink and investors confidence will be negatively impacted, maintained that the reality is that ways and means financing,  high energy cost  and foreign exchange challenges are much bigger factors in the inflation equation.  

He urged the CBN to pay greater attention to financial system stability at this time.  

“Recent developments in the global financial system underscores the imperative of cautious interest rate hikes. 

“The CPPE is concerned about the stifling effect of the high CRR of 32.5percent on the banking system stability and financial intermediation role of the banking system.”

The Lagos Chamber of Commerce and Industry (LCCI) added that  the increase in the monetary  policy (MPR) rate will put pressure on businesses with the resultant effect of rising operating costs.

Director General,  Chinyere Almona,  urged the CBN to look further inward at the peculiar situations driving inflationary pressures within the Nigerian economy. 

“Rate hikes are known to weaken growth and as such, it is expected that the monetary and fiscal authorities intervene with policies and instruments that are growth-boosting. We are also calling on the government to commence preventive measures against the expectation of flooding in 2023.

“This was our major concern regarding the implementation of more taxes, as provided in the 2022 Finance Bill. We urge the government to consider streamlining these issues such that they do not swamp businesses and render them unproductive and uncompetitive.”

Almona opined that beyond the rate hikes, policymakers need to consider more actions to increase and stabilise oil production levels to earn more FOREX, adding that better coordination of fiscal policies can complement the deployment of monetary instruments by the CBN. 

“We have consistently advocated for a more friendly policy/business environment that will attract foreign and domestic investment and improve productivity (particularly domestic food production). 

“Weak power supply, scarcity of FOREX and expensive logistics due to fuel scarcity are critical issues that must be closely watched and attended to with effective policies and fiscal instruments.