The Manufacturers Association of Nigeria (MAN) has said the latest decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to reduce the Monetary Policy Rate (MPR) by 350 basis points to 23.0 percent from 26.50 percent would create a more supportive environment for manufacturing.
The association, in a statement issued by its Director General, Segun Ajayi-Kadir, however, cautioned that lower interest rates, alone, would not resolve the structural constraints that continue to raise the costs of production in the sector.
It described the MPR reduction as representing a significant easing of the monetary policy stance of the apex bank, expressing the optimism that the adjustment would lower the borrowing cost and improve the operating environment for businesses, particularly manufacturers, whose activities depend heavily on working capital and investment financing.
It also noted that the MPR reduction would go a long way in supporting manufacturers’ capacity to finance inventory, raw materials, production cycles, equipment acquisition, and business expansion.
On the retention of the Cash Reserve Ratio (CRR) at 45 per cent for Deposit Money Banks, and 16 per cent for Merchant Banks, the association expressed concerns that a substantial proportion of banks’ deposits would continue to be held as reserves.
‘While reserve requirements remain important for financial and monetary stability, the relatively high CRR may continue to constrain the proportion of deposits available for lending to productive sectors,’ the association noted.
It, therefore, advocated for stronger coordination between monetary and fiscal authorities to ensure that monetary policy easing is complemented by targeted fiscal and structural interventions.
Such coordination, the association argued, was necessary to translate the reduction in the policy rate into lower lending costs, improved access to credit, increased productive investment, an improved operating environment, and stronger industrial growth.
MAN also wants the government to expand access to concessionary, single-digit financing for manufacturers, particularly SMIs and businesses operating in strategic sectors, as part of its efforts at supporting sustainable economic growth and industrial development:
The association appealed to the government to, progressively, review the high CRR for Deposit Money Banks, where prevailing macroeconomic conditions permit, to create greater lending capacity for productive sectors, and safeguard financial-system stability.
MAN asked the Federal Government to partner with deposit money banks (DMBs) and the Bankers’ Committee to ensure that the 350 bps MPR reduction, translates directly into lower prime and maximum commercial lending rates for local manufacturers.
On ways of reducing the cost of manufacturing, MAN urged the government to intensify efforts at addressing structural production constraints, particularly electricity costs, transport and logistics expenses, infrastructure deficits and insecurity, which, it argued, had continued to raise operation cost in the sector.