 Welcome back, it's still the breakfast on PlusCVAfrica, Central Bank of Nigeria on Tuesday raised its benchmark lending rate to 16.5%. This is in a sustained push to control inflation and ease the pressure on the Naira, which has been through a lot in recent time. CBN governor, Governor Nehmeh Filet made this note at the end of the Monetary Policy Committee meeting, the statutory monetary policy committee meeting that held in Abuja. The CBN said the previous increases were beginning to yield results and that there was a need to keep tightening, tightened by 100 basis points. Nehmeh Filet announced that the committee also retained the cash reserve ratio at 32.5% and voted to retain the asymmetric corridor at plus 100 and minus 700 basis points around the NPR. The liquidity ratio was retained at 30%. Cash reserve ratio is a share of a bank's total customer deposits that must be kept with the Central Bank in the form of liquid cash, while the bank's liquidity ratio is the proportion of deposits or deposits rather and other assets that they must maintain to be able to meet short-term obligations and what does this lending rate increase mean for Nigeria's economy. I'm glad to say we have joining us this morning to discuss these two wonderful individuals. Mukhtar Mohamed is our first guest. He is a financial analyst and chief executive officer. He joins us live for our Zoom in Lagos. Mukhtar, good morning to you. Thank you very much for your time. Thank you. Good morning. All right. All right. We'll also be joined later by Shagun Shopiton, who is the principal partner at Woodbridge and Scott Consulting Lagos. Well, let's start with you, Mukhtar. Did you expect, you know, were you surprised that there was more tightening by the MPC? I thought with the result they've gotten, we could just maintain the rate because we've seen that in July inflation was a month, a month and month was about 1.82, and that October we've done inflation was doing 1.24. I thought that was a very good result. I thought they were going to maintain it. But I think they looked at the festivity period that we are going into also to come to this decision because there will be a lot of spending during this festivity period. So if they are not able to raise the rates at this time, that means all the game that they have achieved over the months could be eroded, and I think that's why they did that. And also, we must not forget the global inflationary pressures all over and it's also a challenge to the financial market globally. And we also know that the Russian-Ukrainian war is still up and ongoing. There's not been any peace talk there. And again, we are beginning to hear from China, zero COVID policy of China, and they may shut down also in some of the Chinese factories. So all these are going to play out going forward. So I think that's why the rates, you remember, every other variable is left untouched. But only just the rate that was high. So definitely, I think they are looking at the result that they have been able to achieve thus far over the months and thinking that with risk, I would come also on that positivity, even if you look at that, by and by the manufacturers or those that have collected loans from the bank, it's not so much of a good news for them. Interesting. Indeed, let's look at the complaints by the manufacturers industrially. It's saying that there will be an increase in the amount of bad debts by those in that sector. And it's going to cause a shutdown of some of the industries you have in the country. How is this so? Well, I think it's true. But when I go for a shutdown, I don't know about that yet. But I think when you look at the cost of borrowing, we go up and the manufacturers are suffering a lot of challenges. They still have the power issues are still there. They still have high costs of gas also to power their plant are still there. There's also the economic micro economic instability whereby a lot of Nigeria cannot afford their goods any longer like before because of the any power of Nigeria has not increased. That's why the purchasing power of Nigeria has not increased. That's why the price has gone up. So I think they are looking at that. I agree with that. It might cause job losses because when you look at that, you begin to look at how can you reduce your overhead costs? And that could also result in job losses. But again, you are dealing with a monster called inflation and globally. And that has been a trend. If you look at the 20 largest economy in the world, I mean, particularly of them have a hike week, this period with the exception from Turkey, China and Turkey, China, all of that economy have a risk hike. I mean, and Russia also have a rise and raise their rates. So when you look at that, you realize that it's a global trend and Nigeria would not be left. But the only problem I have is that when you see this risk hike in these countries, you already see that the government also come in to do some other physical side to reduce the burden on the people. But in this side, the physical side seems to be non-existent. So what we are saying is monetary policy alone. Monetary policy alone will not give us the kind of result that we desire. And again, when you look at other economies that have raised this rate, this period, you realize that it's all the risk hike. Only in Mexico, Brazil, I mean, has benefited from the risk hike. All other economies in the world, Mexico, Brazil, and Japan, all other are still trading in the negative despite this risk hike. So definitely, it calls for concern. And knowing that for the first time in two decade, Nigeria have a risk hike by 2,500 basic points. It also calls for concern. And it's only Ghana that have had 1,000 big points in the world that have raised that risk rate more than us. Also, we, Nigeria, Poland, and Egypt have raised their rate by over 500%. You know, whilst, you know, the normal thing would be that, okay, raising interest rates helps fight inflation, I mean, the current inflation figures, I think from October, quite, quite high. A 17-year high of 21.09% amidst skyrocketing food and petrol prices. I was telling our viewers yesterday that I bought a loaf of bread, a normal sliced bread somewhere on Victoria Island for 1,000 naira. Gone are days when we could buy sliced bread for 300 naira or even 400 naira. How times have changed? 1,000 naira, I believe, in Muqtah or not. So some would say maybe this isn't working. You know, we've seen tightened last MPC meeting when they came out, they tightened the lending rate. Some would say probably it's time to just allow people to spend more and boost, you know, confidence in the economy and try a different approach. I think it's apparently very difficult to look at that. That's what I say, that's the physical side that will have to do that, not the monetary side. You look at other economic measures, give an example of the UK and the US. What they've done is that they've seen that the burden on the people with this race hike could be very tough for them. And what the government have done on their part is to come up with policy that will cushion this effect of race hike, especially in the UK. You see, they are looking at the energy side of it, especially because it's winter. In the US also, they are looking at that. Also, they are looking at appropriate food in the house, in households which income are less than $50,000 per annum. So those are the physical side. So the monetary side will always do when you talk about this cushion, by putting no more money in the hands of people. I think it has to do with the physical side coming up with policy. But unfortunately, I think, like I said, energy and the physical side seems to be non-existence because the government has taken the backseat thus far because of election. And so there seems to be nothing about it. Maybe they don't even look at the figure or the inflationary figure that's happening all around. So I think for me, that's the challenge. The monetary side will always do what they have to do. It's not there for the physical side. The physical side are the people that will need to deal with their citizens and say, look, we need to deal with this burden on our citizens. We need to do this. We need to do that. We need to reduce taxes. We need to look at these businesses that have great employment. We need to see, OK, can we help this business? Look, how can we help this business and go? All that has to do with the monetary side. But in Nigeria, I think it seems to be non-existent. All right. So apart from the interest rate, the cash reserve ratio has also been increased. And it's not the first time. As you've been done earlier this year, increasing the CRR to a minimum of 30 to 2.5 percent, there's just been trying to mop up liquidity. But we still keep seeing that inflation keeps piting harder and harder in Nigeria. Mukta, maybe this isn't working. It's working. It's working. Like I said, if you look at July month to month, we're at 1.28. Today, we're at 1.42. So you could see that they've been a reduction. And that's why they are including the rate especially because of the festivity period. We can't say it's not working. But you know, inflation is not something you begin to see the result immediately. Like the first half of next year, who could also have this challenge also? Because you remember, again, we are still dealing with the insecurity challenges. By next year, we begin to see the impact of the flooding that has happened in a major part of Nigeria also in the government. So you might not see a decrease in terms of inflation. A rapid decrease in terms of inflation. But with time, when you begin to put up these measures, you begin to remember that this thing didn't just come overnight. So definitely reducing the inflation figure will not just happen overnight. You need to be coming up with the policy. But like I said, my only challenge is that the multi-policy seems to be the only one doing everything. And so if you don't get the physical side involved, you will not see the kind of result that you've been seeing in other economy in the world. If you look at the UK, they are very, they have a high trade. But yet, the last time you have the 40 years, the highest figure for 40 years in terms of inflation is not because it's not working. Month to month is working. But when you look at the year, compared to this year to last year, you realize that there's still a long way to go. But you can't say it's not working. I think it's working. But again, Nigerians wants to have a food on their table. And that is the challenge why the Nigerians seem not to be working that fast is because we have a major constraint which has to do with the exchange rate volatility, knowing that about 80% of what we consume imported into this country. So that, again, is a problem. And CBN have a shiny way of addressing the exchange rate volatility. There seems to be no idea on how to close the gap that is being taken care of by the Birode change until they close that gap and create the market for those that patronize the Birode change to be able to get effects seamlessly. We'll continue to have that volatility. And once that volatility comes, most of the people that have products that import product into this country do not wait for the ban because the process of getting effects from the bank is so long and when you're in business, it's all about time. So all those are challenges that CBN need to address. They're able to address that. We could see a drastic reduction in terms of inflationary. But as long as we have the volatility, we won't be able to see that. And again, not to forget that we are not even, most of our goods come from China and China is beginning to grapple with COVID pandemic also. So that could also increase inflationary figure going forward in the long term. So interesting that you went to the next question which is looking at the exchange rate. Does this tightening of the interest rates and even the CRR, does it have any impact on the exchange rate? Ordinarily, it should have impact because NAMI will have foreign portfolio investors that will be moving from the equity market to the fixed income market. And so NAMI will be able to come in with effects into the economy and that will be able to address the supply side. But we are not seeing that even if we've got a positive response that foreign investors are beginning to come into the country now. But the impact is not yet felt yet. Know that they are also having their own challenges in their own countries also soon. Definitely you would have seen that but unfortunately it's not happening yet because of the volatility that we just talked about. The difference between the parallel and the official import export window is too wide. And so every investors want to have value for their money. So most of them will prefer going to the parallel market and come into the import export window. And the CBN will not allow that to happen because that will also create hike in the parallel market and that difference is wider. So definitely I think in the short term we are not seeing that because we are not getting the supply angle. And remember that NNPC also have no redeem anything into the federation account. That's also a big challenge for the government. So our foreign reserve is still hovering between 39 to 40 billion dollars. So definitely it's not helping us. It wasn't too long ago Nigeria moved to that import export or investors and exporters windows or some will call it. And one would have expected that this would have because it was meant to bring together give Nigeria a sense of having one exchange rate. But we still see the parallel market holding in this way. You've talked about the difficulties in accessing the effects from the banks. What does the CBN need to do? Because the World Bank in its recent report on Nigeria has said that we need to have the CBN rein in this exchange rate volatility, like you said, and have one single exchange rate. How can this be achieved? We've seen several things being done by the central bank of Nigeria, including in the cutting trees where the malams stay to exchange money in Abuja. So they'll have no shade, you know, and then all that to start. And we've seen CBDCs rather being raided recently. What does the CBN need to do to make sure we have a one unified exchange rate? We are in Nigeria and I think the cutting of the trees from Malang not to have shade would have really reserved because remember that the exchange rate was about 900. Maybe after that cutting of that tree, it went to as low as 680, even if not going to 770. And maybe the continuous cutting of the tree will bring it to 200 like the EFCC chairman have said. But that's also, you know, I think the CBN have tried as much as they can. But the problem is you must bring that supply. You must reduce that supply gap. And that's what the change have been able to do for people. It's not because the Birode change does so much of the exchange. If you look at what you get from the official window and what you think you have in the Birode change, you realize that the official window do more than the Birode change. But the challenge has just been that in the official window, the bureaucracy involving getting those efforts and the time factor comparable to the Birode change. And like I said, I think the IMF or World Bank report is what we have been clamoring for. Thus far, why can't you allow the bank also to bridge that gap on the Birode change? Why can't you have a Birode change seat in the bank where I can work in there and do my exchange like it's done in other developed nations and my details and everything is taken? So I think that is what the CBN should be doing. I don't know why they don't want to give the bank that opportunity to begin to act as also a Birode change like what you have in the Birode change like it's done in every developed country in the world. And again, you might realize that some of these bankers even have FS offshore. So when you create that window for them, they might begin to bring back their FS into the market to be able to meet demands for their customers. That could also be a means of increasing their bottom line also. So I think I don't know why the CBN is shining away from doing that. Every economy in the world is only Nigeria that you go about, you see somebody in this shit telling you come and change and coming with calculator and everything. And I keep saying that because we have made it so lucrative for them, and I'm sure if you call somebody in IO, I want to know the price of what they exchange with. They will tell you, let me call one a book here. Let me go to one website. Instead, ordinarily, they are supposed to go to the CBN website. That's what they say, oh, what is the CBN website? What's the banking website saying to release? That's supposed to be the true reflection of the value of our exchange rate. But unfortunately, we have allowed the Brody change to have their way for so long that I remember at the point where we're giving them 200 million every week and yet they keep on exchanging at an extraordinary differences and nobody did anything about it. So by the time the CBN woke up to do everything about it, it's more or less like corruption fighting back and definitely we've seen the race icon. People are still speculating that the rate will get to 900 million. Maybe we need to send Maru out there so he can fix things, I don't know. But very quickly, do you expect the Naira to read the newly designed Naira to help the situation in terms of bumping up liquidity, reducing liquidity and ultimately strengthening the Naira, reducing inflation as well? Yes, I expect it to happen, you know, because most of the Naira that are chasing the dollar that makes the dollar to the Naira is going to go, these are not in the banking space. I can tell you, most of this money are gotten through illegal means, maybe through boundary free, through corruption or through terrorism. So once you have them inside the banking box that like the CBN governor said that there will be a reduction in the 500 to 1000 Naira, no, so all those will help bump up liquidity. And once the demand side of the dollar goes down because what we are saying now, a lot of Nigerians that have gotten this Naira through illegal means are beginning to take it to exchange for dollar because they don't want to lose their Naira on. Unfortunately, the AFCC and the CBN also come up with policies that are going to help. Maybe that's the only way that you see that and come down because most time now you realize that the security change would not want to collect this money because they have to do KYC and then you have to watch how much you collected, where did you collect it from there? So from who did you collect it from or why are you bringing such a huge fund into the banking space that could help in the short term. But like I've already said, the problem with Nigeria has not been that we are not able to reduce the gap. Remember that at the point we went as far as 500 before we got to 360, we stayed in 360 for about two years before the COVID-19 and now the Russian-Ukrainian world brought us down to where we are today. So definitely the problem is once we bring these differences coming down, are we able to maintain it? And the only way we can maintain it is to begin to create other stream of income into our economy. You see, you quoted the parallel rate there. I think maybe that's another issue where we're always looking at the parallel rate, not the official rates, maybe that's another issue. But anyway, you make more money with it. You make more money, the parallel rate and the official rate. Absolutely, absolutely. I mean, you and I will always want to go to the street to change because we'll make more money from that. That's an issue. But thank you so much. It's great to have you Mukta Muhammad financial analyst on the breakfast this morning. Thank you. Have a great day. Okay. And of course, old ticket break. When we come back, we're looking at the National Assembly approving a new bill. It was called the Education Bank Bill, which is meant to give student laws. Is this going to work? We'll discuss that when we come back. Stay with us.