Nigeria’s financial system is set to adopt a more transparent benchmark for short-term lending, following a new move by the Central Bank of Nigeria (CBN).
In a statement released on Friday by its Acting Director of Corporate Communications, Hakama Sidi-Ali, the apex bank unveiled the Nigerian Overnight Financing Rate (NOFR), a newly established standard for the country’s money market.
The initiative was developed in partnership with the Financial Markets Dealers Association to strengthen market operations and improve clarity in pricing.
Why the CBN Introduced NOFR
According to the CBN, the NOFR is designed to serve as a reliable benchmark for overnight lending between banks, reflecting actual transaction data rather than estimates.
This approach is expected to improve price discovery, ensure more consistent valuation of financial instruments, and reinforce trust in the system.
The bank emphasised that the new rate brings Nigeria in line with widely used global benchmarks such as the Secured Overnight Financing Rate in the United States, the Sterling Overnight Index Average, the Euro Short-Term Rate, and the Tokyo Overnight Average Rate, as well as South Africa’s Johannesburg Interbank Average Rate.
The introduction of NOFR follows consultations with market stakeholders, culminating in its formal adoption at a meeting held on February 27, 2026, and subsequent regulatory approval.
The CBN will act as the official administrator, ensuring the rate is governed transparently and published consistently.
How NOFR Works in Nigeria’s Financial System
Operationally, the benchmark captures the cost of overnight secured lending in the interbank market, using only qualifying naira-denominated transactions.
It is calculated through a volume-weighted trimmed mean method, which filters out extreme values to maintain accuracy.
The rate will be released daily at 10:00 a.m. on the next business day.
Where there is insufficient transaction data, the previous day’s figure will be carried forward, with clear disclosure to maintain continuity.
Importantly, the CBN clarified that NOFR is not a replacement for policy tools like the Monetary Policy Rate.
Instead, it functions as a reference rate that financial institutions can use to price loans, contracts, and other instruments.
Will NOFR Affect Loans and Savings Rates?
For investors and market participants, the new benchmark is expected to improve valuation, pricing, and risk management of naira-based assets, while encouraging deeper activity in the domestic money market.
However, everyday banking customers may not notice immediate changes, as lending and savings rates remain influenced by broader economic factors.
The CBN added that the framework includes strict governance provisions.
Any corrections to the rate will only occur in the event of significant errors and must be publicly disclosed.
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Additionally, the methodology will undergo annual reviews to ensure it remains relevant and effective in a changing financial landscape.
Overall, the introduction of NOFR signals a step toward greater transparency and modernisation in Nigeria’s financial markets, with the potential to boost investor confidence over time.