DR. Samuel Nzekwe, former president, Association of National Accountants of Nigeria (ANAN) last week in Lagos, advised the Central Bank of Nigeria (CBN) to stop increasing the Monetary Policy Rate (MPR).Nzekwe said at the weekend that the recent hike in MPR by the apex bank was overheating the lending rate and the entire financial system.In March 2011, the CBN raised the MPR, which is the benchmark interest rate at which commercial banks borrow from the CBN to 7.5 per cent from 6.5 per cent.He said, ``unfortunately, the CBN had not addressed a major issue in the financial system which is the gap between interest paid on deposits and the lending rate.Nzekwe said while interest rate on deposits hovered between two to three per cent, the lending rate stood between 23 to 25 per cent.He said as soon as the CBN came up with its pronouncement on MPR, banks reacted immediately by also raising their lending rates.According to him, one would have thought that since the lending rate is already very high and also the rate of inflation, the CBN should have thought about how to bring down the rate.The former ANAN president said he strongly believed that hiking the MPR would not bring down inflation for a number of reasons.The accountant said one of the reasons was that 50 per cent of Nigerians in the informal and semi-formal sectors were completely unbanked.What this means is that these categories of people or organisations (informal and semi-formal sectors) do not directly depend on banks and the entire financial sector in doing their businesses, Nzekwe said.``It, therefore, means that whether the CBN increases of reduces its MPR, it will have little or no effect on the activities of the unbanked, who form the engine room of the economy, he said.The former ANAN president said the situation where the economy was operating on a cash basis with little or no room for credit, had also rendered banks intermediation role inactive.Nzekwe said the apex bank should know that the real problem causing inflation was that the real sector had almost been extinguished due to the harsh economic environment.The implication of this is that when the real sector is not active, there will be no adequate production of goods and services for the economy, he added.According to him, this will in turn create inflation because so much monies would be chasing very few goods and services.He said the main cause of high inflationary rate in the country was the problem of not fixing the real sector right.``Both the fiscal and monetary policies of government should focus attention on creating an enabling environment to kick-start the real sector.``By so doing there would be production of goods and services; unemployment would be reduced drastically, inflation would come down and there would be economic growth and development, Nzekwe said.The accountant said raising the MPR or hiking interest rate to check inflation could work in developed economies because the real sector was producing at full capacity and all their transactions passed through banks.The former ANAN president explained that developed countries produced goods and services for both local consumption and for exports, adding that the question of inflation did not arise.He advised that the apex bank should get the unbanked into the banking system by developing customer-friendly products, saying this is the only way the MPR and other monetary policies could work.
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