April 17, (THEWILL) —
The Central Bank of Nigeria (CBN), in collaboration with the Financial Markets Dealers Association (FMDA), has introduced the Nigerian Overnight Financing Rate (NOFR) as a new benchmark for Nigeria’s money market, a move to improve transparency, strengthen monetary policy transmission, and deepen the country’s financial markets.
The benchmark, now operational, reflects the cost of overnight secured funding in the Nigerian interbank market and is derived from actual market transactions rather than estimates, positioning it as Nigeria’s official overnight risk-free interest rate.
According to the CBN, the introduction of NOFR is designed to improve price discovery and transparency in short-term interest rate markets while promoting consistent pricing of money-market instruments across the financial system. The initiative is also expected to enhance the effectiveness of monetary policy, strengthen risk management practices, encourage financial innovation, and boost investor confidence in Nigeria’s financial markets.
With the adoption of NOFR, Nigeria joins other major financial markets that have transitioned to transaction-based overnight reference rates. Comparable benchmarks globally include the Secured Overnight Financing Rate (SOFR) in the United States, the Sterling Overnight Index Average (SONIA) in the United Kingdom, the Euro Short-Term Rate (€STR) in the Eurozone, and the Tokyo Overnight Average Rate (TONA) in Japan. Within Africa, the benchmark also aligns Nigeria’s financial market structure with South Africa’s Johannesburg Interbank Average Rate (JIBAR).
Market participants formally adopted the benchmark during a stakeholder engagement session held on February 27, 2026, after which it received regulatory approval for implementation. The CBN will serve as the benchmark administrator, ensuring governance, transparency, and regular publication of the rate.
The Nigerian Overnight Financing Rate will be published daily at 10:00 a.m. Lagos time, reflecting the cost of eligible overnight transactions recorded on the previous business day. Unlike policy indicators such as the Monetary Policy Rate, NOFR is a market-based reference rate, meaning it reflects actual trading conditions rather than policy decisions.
The rate is calculated using a volume-weighted trimmed mean methodology based on eligible naira-denominated overnight secured repo transactions executed in the interbank market. To ensure accuracy, transactions must meet specific criteria, including a minimum transaction size of ₦5 billion and reporting by eligible banks. Under the methodology, the lowest 10 percent and highest 10 percent of transaction volumes are excluded, with the remaining data averaged to produce the benchmark rate. In cases where sufficient transaction data is unavailable, the benchmark will default to the previous business day’s rate, with this outcome clearly disclosed during publication.
Financial institutions are expected to use NOFR as a reference point for pricing, valuation, discounting, and risk management of naira-denominated financial instruments. For corporates, certain structured or syndicated loans may reference NOFR directly or indirectly, although the benchmark itself will not determine final borrowing costs. Loan pricing will still depend on credit risk, loan tenor, and contractual terms, meaning NOFR primarily improves transparency rather than dictating lending rates.
Retail customers will also benefit indirectly from the benchmark through greater credibility and transparency in financial markets, though it will not directly determine savings rates or consumer loan pricing. The CBN has also established governance mechanisms to maintain the credibility of the benchmark, noting that corrections to the rate will only occur in exceptional cases of material error of five basis points or more, with any adjustment clearly disclosed to market participants. In addition, the benchmark methodology will undergo annual review by the central bank to ensure continued alignment with evolving market practices.
Analysts say the introduction of NOFR represents a significant step in modernising Nigeria’s financial infrastructure, aligning domestic markets with international standards while strengthening transparency, fairness, and stability in the country’s financial system.
Ogochukwu Onwaeze is a writer specializing in business and economic journalism. At THEWILL News Media, she translates market trends, financial developments, and policy shifts into clear and engaging stories.
