The Manufacturers Association of Nigeria (MAN) has raised alarms over the Central Bank of Nigeria’s recent hike in lending rates to 35 per cent, up from 28.6 per cent.
The manufacturers raised concerns over the 35 per cent aggregate lending rates charged by commercial banks will increase inflationary pressures and discourage investment in the manufacturing sector.
This increase, attributed to monetary policy adjustments, is expected to escalate prices and unemployment, severely impacting the manufacturing sector.
MAN warned that such high rates discourage investment and spending, potentially leading to a decline in production and job losses across industries.
It said that the lending rate grew by 6.4 per cent in the second quarter of 2024 up from a 28.6 percent interest rate in the first three months of the year.
The association made this known in its second quarter Q2 “24 MAN CEO’s Confidence Index (MCCI)” entitled “MAN Position on the Incessant Increase in Interest Rate”.
“The continuous hikes in MPR have tightened financial conditions for the productive sector, with the average maximum lending rate charged by commercial banks on manufacturers’ finances rising to 35 per cent in Q2 2024 from 28.6 per cent in Q1 2024,” MAN said.
“This has not only increased the cost of goods but has also further compounded the inflationary problem and threatened employment in the sector,” it added.
The MCCI aggregates the views of 400 CEOs of manufacturing firms across the six geopolitical zones on macroeconomic changes in the country, like business and employment conditions, production levels and operating environment.
Due to macroeconomic challenges, the index was slashed from 53.5 points in Q1 to 51.9 points in Q2, the report stated.
Zenith Bank lending rate to manufacturers in Q2 was 30 per cent on average while Access Bank and the United Bank for Africa placed theirs as 32 per cent, the report said.
Meanwhile, First Bank of Nigeria and Ecobank held their interest rates at 35 per cent during the period under review, MAN said.
MAN also faulted the “erroneous disposition” of the monetary policy committee (MPC) of the Central Bank of Nigeria (CBN) to fight inflation with continual hiking of the monetary policy rate (MPR), which is the benchmark for banks’ interest rates.
At the last MPC meeting in July, the monetary authorities hiked the benchmark interest rate by another 50 basis points to 26.75 percent, in a conventional way to rein in inflation and stabilise the naira.
The country’s interest rate has been raised by 1,525 basis points since May 2022, following the aggressive monetary hike, but inflation still remains elevated, nearing a three-decade high.
“Unfortunately, inflation has continued to defy the antidote of increased interest rates, as the inflationary problem in the country is largely driven by supply-side deficiencies and other structural bottlenecks,” the report noted.
The manufacturers added that before the recent increase in the MPR, available data revealed that none of the five top banks charged a maximum lending rate below 30 percent.
MAN also cautioned that the MPC’s decision would further “escalate the cost of borrowing, limit access to credit, and discourage investment in the manufacturing sector.”
However, it expressed concern that the manufacturing sector’s capacity to play its strategic role of stimulating economic growth has been further constrained by the increase in interest rates
“The new rate will further limit the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness, and sales will further decline beyond measure,” it said.
The association, therefore, said it was expedient that the CBN prioritises the survival of manufacturing in making monetary policy decisions.
“This would enable the sector to effectively play its role as the key driver of employment creation, productivity, stable foreign exchange earnings, and sustained economic growth,” it added.
MAN urged the apex bank to be domestic-production-centric by halting plans to continue hikes in lending rates and giving time for the real sector to recover from the impact of the previous increase.