 Well, we're back with the breakfast and plus TV Africa time for us to look at the concerns that have been raised, you know, as regards the economy. Well, we have a guest joining us this morning via Zoom, Dr. Modo Yusuf. Dr. Modo Yusuf, thank you for joining us. Thank you very much. All right then. A bit of a background, you know, before we head straight to the conversation. Well, the National Bureau of Statistics says Nigerian inflation rose to 21.47%. That's in November from 21.09%. That was recorded in October, which represented 10 consecutive months increased since the start of 2022. Now, despite this, economists are worried that key drivers of inflation are being sacrificed for penny chasing and misplaced policy at the time. You know, the economy is falling into chaos on the eve of another year. The Central Bank of Nigeria, that's the CBN, has embarked on an aggressive interest rate regime to reduce, you know, the stubborn high inflation increase and also the monetary policy rate. That's the NPR by 500 basis points since May to 16.5%. Well, experts are also worried that the ultra high cost of borrowing would only stifle the already shocked local manufacturing space. According to the CBN, the maximum lending rate was over 28% in October, where the manufacturers and all the fund users say that the pay as much as 30% of the cost of the fund. And to make sense of all of this, we have our guest joining us, Dr. Muda Yusuf. Thank you so much once again for being part of the show, a compliment of the season. Thank you very much. Yes, please. So over time, the CBN has increased interest rate now. The high targets only 10% of inflation costs. I'd like to ask you, what does this tell of our monetary policy? Well, the Central Bank of Nigeria possibly means well, you know, one of the major objectives of Central Bank, one of the major functions is to ensure price stability. So it is within that context that CBN has been deploying some of these monetary policy instruments and namely, reviewed the NPR, which has been consistently, been reviewed upwards over the last three MPC meetings. They reviewed the CRR, which is the cash reserve requirements. And of course, those are the main reviews that they have done. Or that's like liquidity ratio have been left constant. But the point is that even in spite of all this upward review or what you call monetary policy tightening, inflation has not updated. And the reason is that the economy is not very well connected with the financial system. And those who are paying the price for this tightening are essentially those who are in the real economy, those who have borrowed money from the banks, and those who are about to borrow money from the banks. Because interest rates have been going up and yet inflation is not a bit. That is why we pay that. The effectiveness of monetary policy in terms of tackling inflation is something that we need to interrogate. Because the factors that are driving Nigerian inflation are essentially cost-driven factors, that supply-side factors, that is what we call it in economics. These are factors pushing off the cost of production, cost of distribution and all of that. So that is where the emphasis should be. Another major component, which also is driving inflation, especially what you call liquidity in the financial system. That is the sharp growth in money supply. It's also the injection of liquidity by the Central Bank of Nigeria. That's what we call ways and means. Because I mean over the last few years, the government has been having challenges with its finances, fiscal deficits have been growing, revenue targets are not being met, and yet expenditure has been growing. So to fill this financing gap, apart from borrowing from other sources, the government is also borrowing a lot from the Central Bank, and that is injecting a whole lot of liquidity into the system. And that is really inflation a great deal. Because cumulatively, I mean as we speak, over 20 trillion have been borrowed from the Central Bank to finance these deficits. And in economics, we regard this financing as high-powered money. They are highly inflationary. So it's also a major factor when we talk about inflation, apart from the supply-side issues, which I'm sure will come to as we progress with this conversation. So that is the situation. We need to get the financial system to be better connected. But as you speak, the financial system is not properly connected to the real economy. And we can also stick to data in this context. Where we look at domestic credit to private sector as a percentage of GDP. In Nigeria, currently, it's around 22%. Sub-Saharan average is about 40%. In many of these advanced economies, it's over 100%. So that shows that in many of these advanced economies, where they use regularly these monetary policy instruments, there's a very strong connection or link between the financial system and the economy, and between the financial households. That is why in many of these advanced economies, they use a lot of credit cards. To credit or interest rate adjustment affects the way they spend. But in this economy, it is not exactly like that. How many bank customers have credit cards? How many businesses have access to credit? So it is the few people that are able to access credit that are bearing the brunt of the continuous monetary policy tighten. So that is why we feel that it's better to look elsewhere and not just to follow what other people or just copying and paste what is being done in other jurisdictions in terms of monetary policy tighten. Because the peculiarities are different. We have our own peculiar challenges here. All right. Dr. Yusuf, thank you. Very interesting. I was about to take a pain from this, so I could take some notice from what you were saying. You've talked about monetary policy as it's being implemented by the central bank, not being the solution to what we have because of those who are outside the financial system in Nigeria. Like this report says, the interest rate hack is only targeting 10% of the cause of inflation. You talked about supply side issues. There are skyrocketing prices everywhere. Since the central bank is only vested with the responsibility to handle the monetary policy of the country, nation's economy, what else can it do? What else can it do to tackle this inflation? Because one would think that they are doing the right thing, economically speaking, by increasing interest rates and tightening the system so that it becomes more expensive for people to borrow and therefore they reduce the liquidity. That's number one. What else can be done? Now, number two, do you think that this new cash withdrawal limit policy by the central bank will be successful in reducing the liquidity in the system? Well, as to what this can be done. First, tackling inflation is both a monetary and a fiscal responsibility. The fiscal authorities have responsibility in this matter, just as the monetary authorities also have some responsibilities. Because the economy is not interest rate sensitive, there is very little we can achieve with regard to adjustment of interest rates. But the CBN has a whole lot to do with exchange rates. Because exchange rate situation or exchange rate depreciation is also a major factor that has been driving costs and increasing prices upwards. I mean, if you look at the rates over the last one year, you can see how rapidly the exchange rate has depreciated and how there is a very strong correlation between the exchange rate depreciation and the general price level. So the exchange rate policy needs to be reviewed. The exchange rates are management of a major factor and it's a major source of distortion in the economy. It's affecting investment. It's affecting outputs. And it's also affecting confidence generally in the economy. Now, as you know, we have multiple rates, which is a major problem. We have a very big gap between the official window and the parallel market window. We have a premium of close to between 80 to 90 cents. It's almost unprecedented in the history of this country. And I don't think there's anywhere in the world where you have this kind of disparity between the official rate and the parallel market rate. And the policy itself is also impeding the supply of foreign exchange into the economy. Because foreign exchange into the Nigerian economy is not only coming from oil sector. Of course, we have issues with oil production, oil theft, and the policy issues in oil and gas. But also have prospects because this economy is a very big economy. And the prospects, the chances, the prospects of economic economy is quite high. If only the policy environment is right. But the current foreign exchange policy environment has created a major problem. Apart from the foreign policy environment, quickly before we lose the track, I asked also about the cash withdrawal limit policy in terms of the liquidity in the system. You talked about excess amount of cash in the system. Will this help? Will this help to reduce that liquidity? Because we already see complaints from different sectors of the Nigerian economy about the negative impact of this policy. The policy has no impact on liquidity at all. There is no connection. And when people say that either the designing of the currency or the withdrawal limit will have impact on monetary points or liquidity, that is not correct. Because money supply in the economy currently is over 50 trillion. This cash thing that we dramatize so greatly is just 2.8 trillion. That is about just 5.5 percent of total money supply in the economy. So when people say that because they are designing the currency that we draw a limit, that will affect inflation, there is no economic basis. There is no empirical basis for that assertion. So it is not correct to say that. What that we only do as we are beginning to see, just to disrupt economic activities, especially at the informal sector level and the rural economy, there is going to be a major disruption as we are beginning to see. So the policy is not bringing any significant value into this economy, either from the policy point of view or from productivity point of view. Well, my sense is that perhaps this is just about politics, about the so-called people who are, you know, who want to buy votes, money laundering and all of that. And the question is, should that be the major focus of the central bank? We have numerous institutions of states that are so positive. Dr, we are almost out of time. I'd like to ask you this as we, you know, close the conversation down quickly. Do you think that we need to continue to increase the NPR, especially when the, you know, the World Bank has complained about the increasing inflation? So yes, that's my concern. And that that's because it comes from the lack of commitments to reforms. So do you think that it's, it's very valid and rational that we continue to increase the NPR? No, no, it is not, it is not advisable. I think what we need to do is to reduce the CDF financial deficit, which I alluded to earlier. We call it waste and means. And we need to focus a lot more on reforming our foreign exchange policy. And more importantly, to look at the supply side factors. We have factors like the high energy cost, which you just discussed in your previous with your previous guest, that is falling in inflation a great deal at the cost of diesel, cost of transportation. We have challenges like insecurity, which is affecting food supply. We have challenges like climate change. Look at the effects of flooding and all of that. All of those things we manifest in both December and January inflation because many firms produce, many firms have been destroyed. Then we have also have the global factors. These are all these other factors that we need to address. So we should focus less on the use of NPR, the use of CRR, because CRR in Nigeria today is about 32.5%. It's one of the highest in the whole world. And that is affecting what we call financial intermediation. It's affecting the capacity of the banking system to support productivity in the economy. Because 32.5% of all the deposits have been mopped up by the Central Bank of Nigeria. You know, so I think we just need to just leave the NPR, the CRR, all those variables, we should leave them as they are and look at all these other key drivers of inflation. That is what that is. We have to go. I want to just give me one sentence, because this is actually the thesis of this discussion, which if we don't talk about it, it will be a waste of time. Just one sentence. The experts that we are citing are feeling there will be an inverse relation between the increase in the NPR or the interest rate and local production manufacturing. They think it's here, right? I'll be going down. Just quickly, do you agree with them, sir? Very quickly, please. Yes, yes, yes. It should be going down to the interest rate, the kind of principle of productivity in the economy. Thank you so much, Dr. Muda Yusuf. Thank you, my friend. Well, we appreciate your time. Dr. Muda Yusuf, CEO Center for Promotion of Private Enterprise. Thank you and have a Merry Christmas. Well, that's the size of a conversation. We hope that you join us tomorrow. Interesting. Very interesting. I wish to thank the man for what? Very interesting and very insightful. As we inch closer to 2020, we'll definitely have Dr. Muda some other time to share his thought, and even in 2023. It reminds me of when you call Mukta. Mukta. Well, that's it this morning, and we do appreciate you for always being with us. We hope to return tomorrow, all things being equal. Thank you so much. You can join the conversation on social media and Facebook, Twitter and Instagram, and also subscribe to our YouTube channel as a plus TV Africa and plus TV Africa lifestyle. My name is Messi Bopu. We joined the newsroom at 10 o'clock for the news brief. My name is Stofi Bartels. We're going across the road. Messi will use the ATM machine to withdraw. Do you now know so we can see if it's true or not, and I'll keep them afterwards. See you tomorrow. We have to go. Nine o'clock is time for, you know, the news brief. Please stay with us.