The Manufacturers Association of Nigeria (MAN) has expressed concern over the recent decision by the Central Bank’s Monetary Policy Committee (MPC) to increase the interest rate by 50 basis points. The continuous hike in the Monetary Policy Rate (MPR) since May 2022 has been criticized for leading to increased production costs and higher prices of goods without effectively curbing inflation.
In a statement signed by its Director-General, Mr. Segun Ajayi-Kadir, MAN noted that the 1,475 basis points increase in interest rates from 11.5% in May 2022 to 26.25% in May 2024 has failed to tame inflation, which has soared to a 28-year high of 34.19% in June 2024.
The statement highlighted the detrimental impact of the interest rate hikes on the manufacturing sector. The recent increase in interest rates is expected to further escalate production costs, reduce consumer purchasing power, and diminish competitiveness and sales.
“MAN notes with concern that, despite the continuous increase in MPR over the past two years resulting in a weighty 1,475 basis point hike from 11.5% in May 2022 to 26.25% in May 2024, inflation has remained persistently high, reaching a staggering 34.19% in June, the highest since March 1996. Clearly, the new rate will further constrain the growth of the manufacturing sector, as the purchasing power of consumers, production levels, competitiveness, and sales will face further decline,” the statement read.
The association also pointed out the broader economic implications of the interest rate hikes. These include:
- Escalated production costs and higher prices of finished goods, leading to increased unemployment and social instability.
- Reduced consumer demand, capacity utilization, and profitability.
- Diminished competitive advantage of Nigerian manufacturers in global and regional markets.
- Constrained access to capital, stifled new investment, and hindered expansion efforts.
MAN called for better collaboration between the Central Bank of Nigeria (CBN) and the Ministry of Finance. It urged the CBN to assess the impact of previous interest rate hikes on inflation and requested the federal government to insulate the private sector from these hikes by quickly disbursing the promised ₦75 billion single-digit loan and the ₦1 trillion as pledged by President Tinubu.
This week, the CBN increased the benchmark interest rate by 50 basis points to 26.75%—the fourth consecutive MPR hike in 2024, resulting in an 800 basis points hike since February this year. Despite these measures, inflation has soared to 34.19% as of June 2024.
Since May 2022, the Central Bank’s Monetary Policy Committee has increased the interest rate by a combined 1,525 basis points, pushing the benchmark MPR from 11.5% to 26.75% in July 2024. During this period, inflation has almost doubled from 17.71% in May 2022 to 34.19% in June 2024, marking an increase of 16.48 percentage points.
The persistent rise in inflation and the subsequent interest rate hikes continue to pose significant challenges to the manufacturing sector and the broader Nigerian economy.