It is important to appreciate the consequences of the recent hike in interest rates. The Central Bank of Nigeria (CBN) and its Monetary Policy Committee (MPC) have, as everyone now knows, raised the benchmark interest rate by 50 basis points to 8 per cent purportedly to curb inflation and reduce pressure on the naira. Although the jury is still out, many skeptics do not think the desired effects will be achieved. It is to be noted that the committee had increased rates by a full percentage point to 7.5 during its last meeting in March before the general elections. Perhaps, it is now time to take a holistic look at the full gamut of the macro-economic framework of monetary management rather than the current piece meal increases in rates. The efficacy of this current strategy obviously leaves a lot to be desired. Already, a lot of damage is being done to the ‘real sector’ of the economy. It can hardly be surprising that manufacturers are on edge. The hike in interest rates clearly adds to the many woes of, for example, the manufacturers. The sector, already bogged down by the well known shackle of the infrastructural deficit, consumer resistance to price increases, smuggling, multiple taxation and narrowing profit margins, now has a rate hike to contend with. No wonder the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, has said that the CBN must tread softly, otherwise the economy could return to the days when the cost of funds was as high as 35 to 40 per cent! He is clearly not being hyperbolic; for this is precisely the direction we are heading to if a policy review is not urgently carried out. One consequence of this is that enterprise is already been stifled. Commercial borrowing rates have already gone up. Even when the MPR was at between 4 to 5 per cent, manufacturing was already up and very much against it. What happens next is predictable. The high cost of borrowing discourages industry from borrowing, this is elementary. It means that employment will contract with the possibility that industry will reduce their work force. This is to say the least unfortunate. The country already sits on a demographic time bomb, with an alarming high rate of youth unemployment. In terms of the social consequences, here we are playing with fire. To compound this, government, which is itself the source of all of these problems, will have to borrow at a high cost. With this, any hope of improving social welfare simply flies through the windows. The by-product of rising inflation will of course as usual hit the weaker sectors most. They, the least protected, will have to bear the brunt of a rise in the cost of staples. Pensioners, sadly, will be particularly hard hit. Inflation will continuously erode the value of their pensions. The pension funds of course will also be hard hit. The overall long term effect is destructive. A loss of faith in the efficacy of investing in pension funds will not do society any good at all. For the CBN to increase rates in an environment of high, persistently stubborn unemployment is just absurd. There is clearly a failure of monetary policy here and the CBN should have the intellectual honesty to admit that something is amiss. What is clearly going to be catamylistic is that all the indications are that another hike is due next month in July. Therefore, it is imperative at the onset of a new administration that the government, if it is to succeed, should, as our inestimable columnist ‘LES LEBA’ pointed out in this paper yesterday, “…chat a radical and sensible departure from existing monetary and fiscal policy framework, which have failed to deliver our aspirations for a conducive enabling economic environment, inexplicably in spite of vastly improved export revenue. We recall that in 2008, in spite of best-ever export revenue, Nigeria began to be listed amongst the world’s poorest nations.” Here then spelt out in graphic details is the Nigerian paradox. A bizarre situation whereby a “monetary and fiscal model deepens poverty with increasing wealth.” Stranger than fiction but true! We must begin anew. This will necessitate retooling the entire monetary framework. All the market distortions which have contributed to the Nigerian paradox must be whittled down. This is clearly most pronounced in the manner in which we manage our foreign exchange market. It beats the imagination as to why the exchange rate for the naira comes under a downward pull as we earn more dollars. That paradox again! Given the unintended effect (it is to be hoped) of the present policy, President Jonathan might care to review the present situation of the CBN’s practice of naira substitution for dollar revenue. The constitutionally acceptable position and what is right in commonsense is to ensure that the dollar components of the monthly allocations should be paid with the instrument of dollar certificates! To make a lasting impact, as we have consistently proposed, President Jonathan must go down as the President who untied the Gordian knot of the Nigerian paradox. This must start immediately with a wholesale review of the monetary framework being presently operated. When he does this, he will bring good luck to the hard-pressed Nigerian economy as well as the perennially short-changed Nigerian people.