MPR Cut To 23%: Business Stakeholders Demand Lower Lending Rates

Business stakeholders have described the reduction of the Monetary Policy Rate to 23 percent by the Monetary Policy Committee as a positive development, while insisting that the expected next step must be a transition to lower lending rates.

Reacting to the outcome of the MPC meeting earlier today, the director-general, Manufacturers Association of Nigeria (MAN) Segun Ajayi-Kadir, said the move signals a positive disposition by the Central Bank of Nigeria to ease pressure on the real sector.

According to him, MAN is of the opinion that the reduction is positive, while maintaining that the expected next step is lending rate reduction.

“This development is indicative of CBN’s positive disposition to easing the pressure on the real sector and responding to the persistent call of business, as well as yielding to the dynamism of the business environment. However, the elephant in the room remains the interest rate that an average manufacturer will pay when he or she approaches the bank,” he said.

Ajayi-Kadir commended the apex bank but stressed that further cuts are needed to restore competitiveness.

“So while acknowledging the rate cut and commending the CBN for this significant step, we immediately add that it should be followed by further cuts in order to be sufficient enough to address the evident disadvantaged position of the Nigerian manufacturers, when compared with counterparts and competitors in Egypt, Morocco and South Africa that are able to borrow at 8 to 12 per cent,” he said.

He noted that the current level still leaves manufacturers borrowing at unsustainable rates.

“For meaningful impact we need to witness further deep cuts. Even at 23 per cent MPR, prime lending rate will still be 27 to 30 per cent. This is not a palatable situation for any manufacturer. No manufacturer anywhere in the world can be competitive borrowing at 30 per cent,” Ajayi-Kadir said.

MAN also questioned the weak transmission mechanism, noting that previous cuts did not translate to cheaper loans.

The Association called on the CBN to deploy moral suasion and regulation to ensure banks reflect the policy easing.

“So we call on CBN to use moral suasion and regulation, as well as review its stands to enable banks transmit reduction. We cannot have disinflation on paper and high cost of credit in factory,” he said.

To ensure real impact, MAN listed complementary actions including reducing the Cash Reserve Ratio from 45 percent to free liquidity for manufacturing, operationalizing the N1 trillion Manufacturing Stabilisation Fund at 9 percent, creating a special single-digit lending window for manufacturers, and facilitating a five percent development finance rate for SMEs.

Also speaking, the director-general of Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, urged the CBN to ensure the 350 basis points cut translates into affordable credit for businesses, particularly SMEs.

She stated, “we encourage the CBN and financial institutions to ensure that the benefits of the lower policy rate are progressively reflected in more affordable and accessible credit for productive businesses, particularly SMEs.”

She said the CBN should monitor commercial banks’ response to the easing, especially movement of lending rates and credit allocation to productive sectors.

Almona called for stronger de-risking instruments to encourage lending, saying that “government and financial-sector institutions should strengthen credit guarantees, partial-risk guarantees, and other de-risking instruments that can encourage lending to viable SMEs without compromising prudent banking standards.”

On collateral constraints, she noted that many viable SMEs are locked out.

According to her, many SMEs with viable business models remain unable to access formal credit because they lack conventional collateral. Greater use of cash-flow-based lending, credit scoring, movable assets, and other alternative forms of security should be encouraged.

Almona stressed that monetary easing must be accompanied by measures that reduce structural risks.

She said impact would be more sustainable if liquidity is channeled to productive sectors including manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction.