The Central Bank of Nigeria (CBN) has introduced a new benchmark known as the Nigerian Overnight Financing Rate (NOFR), in a move aimed at improving transparency and strengthening the country’s financial system.
The announcement was made on Friday in a statement issued by the CBN’s Acting Director of Corporate Communications, Hakama Sidi-Ali.
According to the apex bank, the new rate is designed to deepen Nigeria’s money market, improve the way interest rates are determined, and support better decision-making among investors and financial institutions.
The Nigerian Overnight Financing Rate is a standard measure that shows the cost of borrowing money overnight between banks. It is based on actual transactions in the interbank market, making it more reliable than estimates or projections.
The CBN explained that the new rate will serve as a reference point for pricing financial instruments such as loans, bonds, and other contracts in the money market.
“This benchmark is aimed at enhancing transparency, strengthening monetary policy transmission, and deepening Nigeria’s money market,” the statement said.
The introduction of NOFR places Nigeria among countries that already use similar benchmarks to guide their financial markets.
For example, the United States uses the Secured Overnight Financing Rate (SOFR), the United Kingdom uses SONIA, while the Eurozone and Japan use €STR and TONA respectively. South Africa also operates a similar system known as JIBAR.
By adopting NOFR, the CBN said Nigeria is aligning with global best practices.
The new benchmark will be published daily at 10:00 a.m. on the next working day after transactions are recorded. It will reflect only naira-denominated overnight secured transactions between banks that meet specific conditions.
To ensure accuracy, the rate will be calculated using a method that removes extreme values. This helps to present a fair and balanced picture of market activity.
In cases where there are not enough transactions to determine a new rate, the previous day’s rate will be used, with full disclosure to maintain transparency.
The CBN will act as the official administrator of the benchmark, meaning it will oversee how the rate is calculated, published, and reviewed.
The apex bank made it clear that NOFR is not the same as key policy rates such as the Monetary Policy Rate (MPR).
While the MPR is used by the CBN to guide interest rates and control inflation, NOFR will mainly serve as a reference point for pricing financial products.
This means that the new rate will not directly determine how much individuals or businesses pay for loans.
Instead, borrowing costs will continue to depend on factors such as credit risk, loan duration, and agreements between lenders and borrowers.
First, it is expected to improve transparency by providing a clear and consistent benchmark for market participants.
Second, it will support better pricing of financial instruments, reducing uncertainty and improving efficiency.
Third, it could boost investor confidence, especially among foreign investors who prefer markets with clear and reliable benchmarks.
The CBN also noted that the new rate will help strengthen risk management practices among banks and other financial institutions.
By having a reliable reference point, institutions can better assess market conditions and make informed decisions.
For ordinary Nigerians, the introduction of NOFR may not lead to immediate changes in savings or loan interest rates.
Banks will continue to set these rates based on their own costs and risk assessments.
However, over time, improved transparency and efficiency in the financial system could lead to more stable and predictable interest rates.
The CBN said the development of NOFR involved close collaboration with the Financial Markets Dealers Association (FMDA).
The benchmark was formally adopted after a stakeholder meeting held on February 27, 2026, where market participants agreed on its structure and implementation.
Following regulatory approval, the rate is now fully operational.
The CBN also released a set of Frequently Asked Questions (FAQs) to explain how the new system works and what it means for different groups.
To maintain trust in the system, the CBN said strict governance rules will apply to the new benchmark.
Any correction to the rate will only be made in cases of major error and must be fully disclosed to the public.
In addition, the methodology used to calculate the rate will be reviewed at least once a year to ensure it remains accurate and relevant.
These measures are designed to prevent manipulation and ensure that the benchmark reflects real market conditions.
Nigeria’s financial system has been undergoing reforms in recent years, with the CBN introducing new policies to improve stability and attract investment.
The money market, where short-term funds are traded, plays a key role in the economy by providing liquidity to banks and businesses.
However, experts have often pointed out the need for better benchmarks to guide pricing and improve transparency.
The introduction of NOFR is seen as part of broader efforts to modernise the financial system and align it with international standards.
With the Nigerian Overnight Financing Rate now in place, attention will shift to how effectively it is used by banks, investors, and other market participants.
The success of the benchmark will depend on consistent implementation, strong oversight, and continued cooperation among stakeholders.
For the CBN, the move represents another step in its effort to strengthen the financial system and support economic growth.
While the full impact may take time to be felt, many experts believe the new rate could play an important role in shaping the future of Nigeria’s money market.
As the system develops, stakeholders will be watching closely to see whether the new benchmark delivers on its promise of greater transparency, efficiency, and confidence in the financial sector.