Manufacturers seek deeper rate cuts to ease borrowing costs

By Merit Ibe

The Manufacturers Association of Nigeria (MAN) has applauded the decision of the Monetary Policy Committee (MPC) to halt the increase in the monetary policy rate (lending rate), while demanding further reduction for improved cost of borrowing for manufacturers.

The MPC, this week, retained the benchmark interest rate at 27 per cent that was fixed in September while adjusting the Standing Facilities Corridor to +50 / -450 basis points around the MPR from +250/-250 basis points.

The cash Reserve Ratio (CRR) was also retained at 45 per cent for commercial banks and 16 per cent for merchant banks, the committee also retained the 75 per cent CRR on non-TSA public sector deposits to manage excess liquidity while maintaining the liquidity ratio at 30 per cent.

In its reaction to the move, MAN noted that despite the reduction at the last meeting, borrowing costs of 30 to 37 percent remained high for manufacturers, adding that the rate hinders production and reduces the competitiveness of the sector. The association pointed out that the emphasis on exchange rate stability and improved forex liquidity is vital, as manufacturers rely on foreign exchange for imports, but it is essential to reduce the cost of funds to encourage borrowing for expansion and investment.

It further argued that persistent high lending rates will further limit access to affordable credit for manufacturers, especially those within the SMI cadre. MAN viewed that the situation is complicated with prevailing structural challenges like poor infrastructure, high logistics costs, inadequate electricity supply, high energy cost and insecurity that cumulatively raise production costs and weaken competitiveness.

MAN, therefore, urged the CBN and other policymakers to continue to pursue policies that foster inclusive growth, incentivize manufacturing and address binding constraints limiting the performance of the sector.

“The CBN should also strengthen handshake with fiscal authority to promote reforms capable of unlocking the full potential of the manufacturing sector.”

In consideration of the current economic conditions, the decisions of the MPC, and the need for the sector to fully leverage on the emerging macroeconomic stability for productive growth, the association advised that the CBN should adopt a downward review of the rate in the subsequent MPC meetings to lessen the burden of high borrowing costs and incentivize long-term investments in manufacturing, particularly in capital-intensive sub-sectors.

“CBN should consider additional policy instruments or incentives that facilitate credit flow to the real sector of the economy, especially the manufacturing sector

“Government should strengthen fiscal discipline while upscaling investment in infrastructure (roads, power and logistics) to boost the supply capacity of the sector

“The federal government should collaborate closely with the CBN to stabilise the naira and manage external risks by monitoring the potential risk of capital flights because of the MPC’s corridor review that will push banks to lend more.

“Government should implement complementary fiscal measures that support industrial development and promote structural reforms especially in real sectors of the economy including agricultural, manufacturing and energy sectors to further reduce inflationary pressure.

“Urgently resolve the lingering spate of insecurity in the country, especially in agricultural and industrial zones to stabilise food supply and raw material inputs. A secure environment is critical to food security, lower inflation rate and sustained industrial growth in both urban and rural areas.”

The association further advised the CBN to monitor and evaluate the impacts of previous MPC decisions on credit access to the real sector to aid informed position at subsequent meetings.

“MAN appreciates the CBN’s efforts to stabilise the economy and ease inflationary pressures. The decision to adjust the MPC’s corridor is a way to encourage banks to lend rather than hoarding liquidity.

“However, it is essential for the government to seize the opportunity to promote credit-led growth, especially in productive sectors, while managing risks through fiscal discipline and structural reforms.

“Stronger coordination between fiscal and monetary authorities is key to ensure positive impact of the MPC decision on the manufacturing sector, the economy and sustainable development.”