LCCI, MAN decry 27.5% monetary policy rate

•It’s prohibitively high for private sector development, monetary policy not enough to address inflation —LCCI 

•Makes Nigeria 6th most expensive country to source credit

The Lagos Chamber of Commerce and Industry (LCCI) and the Manufacturers Association of Nigeria (MAN) have decried the current 27.5 per cent monetary policy rate, describing it as inhibiting private sector development.

LCCI, in a statement issued by its Director General, Dr. Chinyere Almona, described the current rate as too high for private sector development, insisting monetary policy alone can not address the issue of inflation in Nigeria.

The Chamber, while reacting to the decision of the Monetary Policy Committee (MPC) to retain the 27.5 per cent interest rate, on Wednesday, argued that with the current rate, MSMEs, which represent the engine of job creation and productivity in Nigeria, were being squeezed by the high cost of credit.

The business advocacy group noted that without affordable financing, the capacity of the nation’s small and medium scale businesses to grow, compete, and contribute to economic development is severely limited. 

It, therefore, advised the apex bank to think outside the box since it is becoming increasingly obvious that monetary policy alone can not address the issue of inflation in Nigeria, which, it argued, is being induced by structural and supply-side inefficiencies.

The chamber called for coordinated actions with fiscal authorities to address insecurity, infrastructure deficits, and food supply disruptions, which it described as the root causes of inflation.

It noted that while the recent marginal decline in headline inflation offers some relief, the apex bank must adopt a cautious stance and provide a clear signal of possible future easing, subject to sustained economic improvements.

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According to LCCI, despite the drop in inflation to 23.71 per cent, Nigeria’s macroeconomic conditions still remained harsh due to the persistent inflationary pressures, fuelled by exchange rate volatility, rising fuel and logistics costs, and deep-rooted structural challenges.

“A premature reduction in interest rates under such conditions could undermine investor confidence and raise doubts about the CBN’s commitment to price stability. Maintaining the current rate reflects a balanced approach: one that avoids inflationary risks while allowing time for consistent macroeconomic trends to emerge,” it stated.

The business advocacy group urged MPC to complement the rate- hold with a forward-guided, data-driven roadmap for future easing, insisting such strategy would provide the business community with the clarity needed for medium- and long-term planning.

It also urged the apex bank to remain consistent with the reforms that enhance price stability, through increased production in the real sector, in order to cushion the real sector, and maintain price discipline.

MAN, in its own reaction, expressed deep concern about the continued decision of the apex bank to maintain the Monetary Policy Rate (MPR) at 27.5 per cent since November 2024, despite a global wave of interest rate reductions aimed at revitalising economic productivity and combating stagflation.

The chamber, through its Director General, Segun Ajayi-Kadir, argued that while  most progressive economies are charting a course toward industrial recovery and macroeconomic stability, Nigeria’s monetary stance tends to lead the country’s economy in a different direction. 

“Over the last quarter, countries such as members of the Euro Area, the United Kingdom, Denmark, Australia, China, India, Thailand and Egypt, have implemented interest rate cuts to bolster economic growth and support productive sectors,” it says.                                                             

Yet, our rigidity continues to create unintended consequences that may deepen the parlous performance of the productive sector.

“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,” it added.

The association described the policy posture as not only inflationary, but also suffocating the capacity  of the manufacturing sector. 

It noted that the policy,  compounded with other limiting factors, have continued  to limit the capacity of the nation’s manufacturers,.small, medium and even large-scale, to stay afloat, expand production lines, or even meet basic operational costs.

“When credit is priced highly, production declines and the nation “imports poverty”. 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,” the association added.