Market News

(Bloomberg) -- Nigeria’s central bank is reducing the amount of intervention loans it issues as members of its rate setting committee warned that the funds may be fueling inflation that’s at a 17-year high. 

The monetary authority in Africa’s largest economy has extended about 9 trillion naira ($20.5 billion) to private sector firms in the last three years at concessionary rates to support growth, Governor Godwin Emefiele told reporters in Abuja, the capital, on Tuesday. The funds have helped Africa’s second-largest oil producer recover from two recessions since 2016, he said. 

“The central bank is slowing down on intervention funding to rein in inflation” Philip Yusuf, director of development finance, said at a briefing on Wednesday. That’s a change of course for the Central Bank of Nigeria, which had extended the loans to sectors such as agriculture to boost production in an attempt to bring down food inflation by increasing supply.

Inflation has quickened for seven months, prompting the monetary policy committee to increase interest rates by 400 basis points this year, making it one of four central banks on the continent that have hiked by 300 basis points or more.

The bank has so far recovered over 40% of its loan portfolio, with about 5 trillion naira outstanding or not yet due, Yusuf said. “Some of the loans are under moratorium,” he said. 

Manufacturing has been the biggest beneficiary with almost a third of loans going to the industry. Agriculture, health care, exporters and small and medium-sized enterprises have also benefited, Yusuf said. 

The Abuja-based bank has extended several lines of credit to the private sector at reduced rates of 9% at tenures of up to 10 years, below the prime lending interest rate of about 12%. These loans have become a cheaper line of credit for many firms unable to afford the more expensive, shorter tenured loans from Nigerian banks given at interest rates of up to 27% for small firms and those without a strong credit score. 

While, “these interventions have significantly helped engender growth,” members of the bank’s rate-setting committee urged the central bank to place a close “watch on the inflationary implications of the interventions,” Emefiele said after announcing the MPC’s decision to raise the benchmark interest rate to 15.5%, the highest level since it was adopted in 2006.