Manufacturers Hail CBN’s Jumbo Rate Cut, Demand Lower CRR to Unlock Credit

The Manufacturers Association of Nigeria has welcomed the Central Bank of Nigeria’s decision to cut the Monetary Policy Rate by 350 basis points, describing it as a significant step towards easing the financial pressure on businesses.

However, the association warned that the continued retention of a high cash reserve ratio (CRR) could limit banks’ capacity to lend to manufacturers and prevent the real sector from fully benefiting from the rate reduction.

The CBN’s Monetary Policy Committee, at the end of its two-day meeting on Tuesday, reduced the benchmark interest rate from 26.5 per cent to 23 per cent.

The committee also adjusted the Standing Facilities Corridor to 50 basis points above and 300 basis points below the MPR. It retained the CRR at 45 per cent for deposit money banks and 16 per cent for merchant banks, while keeping the liquidity ratio at 30 per cent.

Reacting to the decisions, MAN said the sharp rate reduction signalled a gradual departure from the exceptionally tight monetary conditions that had weakened manufacturing performance and increased financing costs.

“The reduction is a positive move and in line with our forecast that monetary easing should come after a period of stabilisation,” MAN’s Director-General, Segun Ajayi-Kadir, said in a statement on Wednesday.

According to the association, a lower policy rate could help manufacturers finance inventories, raw materials, production cycles, equipment purchases and business expansion.

MAN added that the revised Standing Facilities Corridor could improve liquidity management in the banking system and support more efficient pricing of short-term funds.

It cautioned, however, that retaining the CRR at 45 per cent for deposit money banks meant a substantial proportion of deposits would remain unavailable for lending.

While acknowledging the importance of reserve requirements to monetary and financial stability, the association said the prevailing CRR could continue to restrict credit to productive sectors.

“The benefits of the MPR reduction may not be fully realised if credit expansion to the real sector remains constrained by the high CRR, which reduces funds available for lending and investment,” it said.

MAN noted that the policy-rate cut could also push down yields on short-term government securities, including Treasury bills and Open Market Operations instruments. It said this could reduce the Federal Government’s borrowing and debt-servicing costs while slightly narrowing the yield advantage available to foreign portfolio investors.

MAN demands lower commercial lending rates

The association said the extent to which manufacturers would benefit from the decision depended on how quickly and strongly it translated into lower commercial lending rates.

It called on the CBN to work with deposit money banks and the Bankers’ Committee to ensure that the 350-basis-point reduction led directly to lower prime and maximum lending rates for local manufacturers.

MAN also urged the government to progressively review the CRR when economic conditions permit, creating more lending capacity for productive businesses without undermining financial-system stability.

It advocated expanded access to concessionary, single-digit financing, particularly for small and medium-sized manufacturers and businesses operating in strategic sectors.

The association further called for the operationalisation of the N1tn Manufacturing Stabilisation Fund through the Bank of Industry at an interest rate of nine per cent. It said the fund should have transparent eligibility requirements, efficient administration and timely disbursement.

It also proposed development financing for manufacturing SMEs at a five per cent interest rate, supported by tenors and repayment terms aligned with industrial production and investment cycles.

Structural barriers remain

MAN stressed that lower interest rates alone would not resolve the structural problems driving up production costs across the country.

It urged the government to address unreliable electricity, high energy and logistics costs, poor road infrastructure, insecurity and other obstacles to doing business.

The association also sought stronger domestic gas utilisation and incentives for manufacturers investing in alternative and renewable energy solutions.

It called for accelerated implementation of the Nigeria First Policy to strengthen domestic value chains, encourage local sourcing of raw materials, reduce import dependence and boost demand for locally manufactured products.

MAN further recommended the creation of a dedicated and transparent foreign-exchange window for manufacturers importing essential raw materials and capital equipment that are not available locally. It argued that the country’s growing external reserves could support such a window and reduce manufacturers’ exposure to parallel-market premiums.

The association also asked the government to strengthen the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending and similar credit-guarantee schemes. Such measures, it said, would give banks greater confidence to lend to industrial SMEs without demanding excessive collateral.

It similarly called for the revival of structured, low-interest intervention facilities through the Bank of Industry and Development Bank of Nigeria, with long-term funding targeted at raw-material processing, machinery imports and local equipment fabrication.

Call for policy coordination

MAN urged stronger coordination between fiscal and monetary authorities, saying the rate cut must be supported by targeted interventions if it is to stimulate industrial investment, employment and economic growth.

It called for the full implementation of the memorandum of understanding between the Federal Ministry of Finance and the CBN, with measurable improvements in policy predictability, investor confidence and support for long-term private-sector investment.

The association also recommended that future MPC meetings consider impact assessments showing how interest-rate decisions affect manufacturing and other productive sectors.

“MAN appreciates the MPC’s latest move towards a less restrictive monetary policy environment and encourages continued policy calibration that balances macroeconomic stability with the urgent need to stimulate productive investment, industrialisation, employment generation and sustainable economic growth,” Ajayi-Kadir said.