The Monetary Policy Committee's decision to reduce the Monetary Policy Rate to 23 percent has been welcomed by business stakeholders in Nigeria. The move is seen as a positive development, with many stakeholders calling for a further reduction in lending rates to support the real sector. According to Segun Ajayi-Kadir, director-general of the Manufacturers Association of Nigeria, the reduction signals a positive disposition by the Central Bank of Nigeria to ease pressure on the real sector.
Ajayi-Kadir noted that while the reduction is a step in the right direction, the expected next step is a reduction in lending rates. He stated that the current lending rates are unsustainable for manufacturers, with prime lending rates still ranging from 27 to 30 percent. This, he argued, makes it difficult for Nigerian manufacturers to compete with their counterparts in other countries such as Egypt, Morocco, and South Africa, who can borrow at much lower rates.
The Manufacturers Association of Nigeria has called on the Central Bank of Nigeria to deploy moral suasion and regulation to ensure that banks reflect the policy easing. The Association noted that previous rate cuts have not translated to cheaper loans, and therefore, complementary actions are needed to ensure real impact. These actions include reducing the Cash Reserve Ratio from 45 percent to free liquidity for manufacturing, operationalizing the N1 trillion Manufacturing Stabilisation Fund at 9 percent, and creating a special single-digit lending window for manufacturers.
The Lagos Chamber of Commerce and Industry has also urged the Central Bank of Nigeria to ensure that the 350 basis points cut translates into affordable credit for businesses, particularly Small and Medium-sized Enterprises. The director-general of LCCI, Dr. Chinyere Almona, stated that the CBN should monitor commercial banks to ensure that the benefits of the lower policy rate are progressively reflected in more affordable and accessible credit for productive businesses.
Business stakeholders believe that the current level of lending rates still leaves manufacturers borrowing at unsustainable rates. Ajayi-Kadir argued that no manufacturer can be competitive borrowing at 30 percent, and therefore, further deep cuts are needed to address the evident disadvantaged position of Nigerian manufacturers.
The Monetary Policy Committee's decision to reduce the Monetary Policy Rate is seen as a response to the persistent call of business stakeholders and the dynamism of the business environment. The CBN's move is expected to ease pressure on the real sector and support economic growth. However, stakeholders believe that more needs to be done to ensure that the benefits of the policy rate cut are felt by businesses and the economy.
To ensure real impact, the Manufacturers Association of Nigeria has listed several complementary actions that the CBN can take. These include facilitating a five percent development finance rate for SMEs and creating a special single-digit lending window for manufacturers. The Association believes that these actions will help to support the growth of the manufacturing sector and improve competitiveness.
Key points
- The Monetary Policy Rate has been reduced to 23 percent.
- Business stakeholders are calling for a further reduction in lending rates.
- The reduction in lending rates is expected to support the growth of the real sector and improve competitiveness.
