The Central Bank of Nigeria (CBN) has been asked to urgently cut the Monetary Policy Rate (MPR), currently at 27.5 per cent, because it is not helping the economy.
This call was made by the Manufacturers Association of Nigeria (MAN) in a statement signed its Director General, Mr Segun Ajayi-Kadir.
On Tuesday, the Governor of the CBN, Mr Yemi Cardoso, after the Monetary Policy Committee (MPC) meeting in Abuja, announced that members agreed to retain the Monetary Policy Rate (MPR) at 27.5 per cent after it was fixed at that rate in November 2024.
Reacting to this, Mr Ajayi-Kadir said the rigid stance of the MPC has continued to create unintended consequences that might deepen the parlous performance of the productive sector and earnestly, “beseech the CBN to urgently reconsider its monetary stance.”
He accused the central bank was to seeking to attract speculative foreign portfolio investors at the expense of Nigeria’s manufacturing base, which is now choked by unsustainable borrowing costs.
“A nation that woos foreign portfolio investors at the expense of its real sector may unwittingly be aspiring to build prosperity on the back of volatility.
“We are disturbed by the implicit prioritisation of short-term foreign capital inflows over the long-term health of domestic industries.
“While maintaining a high interest rate of 27.5 percent may temporarily attract speculative foreign portfolio investors, it is doing so at the expense of Nigeria’s manufacturing base, which is now choked by unsustainable borrowing costs,” he said.
Mr Ajayi-Kadir pointed out that what was evident now in the Nigerian economy was the contrast between the widening profitability of the banking sector buoyed by elevated interest margins and manufacturers’ shrinking margins, rising debts, and declining productivity, declaring that this was an economic paradox that must be urgently addressed.
“The current monetary policy trajectory risks turning banks into vaults of idle wealth, while the real economy—where jobs are created and value is added—faces suffocation,” said Mr Ajayi-Kadir, who warned that “a society that rewards intermediaries over producers invites long-term decline,” describing access to affordable credit as “the oxygen that sustains industrial growth,” adding that no economy has ever grown by starving its manufacturers of oxygen.
He further argued that recent disinflationary trends provided justification for the CBN to cut rates as the improvement in the real interest rates has given financial investors higher inflation-adjusted returns.
“Maintaining a high nominal interest rate under current inflation conditions is neither necessary nor justifiable, and will only prolong the pain for manufacturers and consumers alike,” he stated.
“A nation cannot industrialise on the back of prohibitively expensive credit. With the benchmark interest rate held at 27.5 per cent, Nigeria has become the 6th most expensive country to source credit as local manufacturers grapple with an average lending rate of over 37 per cent.
“This policy posture is not only inflationary, but is suffocating the capacity of the manufacturing sector.
“Compounded by other limiting factors, our members—small, medium and even large-scale—are finding it increasingly difficult to stay afloat, expand production lines, or even meet basic operational costs,” Mr Ajayi-Kadir disclosed.
He stated that domestic production would fall with highly-priced credit, which he said could constrain the country to “imports poverty” by relying on extensive importation of manufactured goods.
“Our concerns go beyond the debilitating impact on our numbers business. The ‘Nigeria First Policy,’ which seeks to strengthen local industry and reduce import dependence, may be under severe threat.
“At the heart of its successful implementation lies access to affordable financing to boost capacity utilisation. Unfortunately, the current interest rate regime constrains finance costs for our members, surging by over 44 per cent from N1.43 trillion in 2023 to N2.06 trillion in 2024 and rising.
“This represents a sharp increase that has directly depressed productivity and led to underutilisation of industrial capacity,” the DG stated, noting that high cost of credit has not only diminished the flow of investments into the manufacturing sector but has also dulled the return on existing investments, with Small and Medium Industries hit the hardest.