CBN Introduces NOFR Benchmark to Enhance Money Market Transparency
By Patience Ikpeme
The Central Bank of Nigeria (CBN), in a strategic partnership with the Financial Markets Dealers Association (FMDA), has officially introduced the Nigerian Overnight Financing Rate (NOFR).
This new standardized benchmark is designed to improve price discovery, strengthen the transmission of monetary policy, and integrate Nigeria’s financial infrastructure into the global ecosystem of short-term interest rate benchmarks.
According to a statement released on Friday by the Acting Director of Corporate Communications, Hakama Sidi Ali, the development marks a shift toward market-driven transparency.
“NOFR was developed to align Nigeria with global best practices in short-term interest rate benchmarks,” Ali stated. “It is expected to improve price discovery and transparency while promoting consistent pricing of money market instruments. It will enhance the effectiveness of monetary policy, support financial innovation, boost investor confidence, and strengthen risk management across the financial system.”
The rollout follows a comprehensive stakeholder engagement session held on February 27, 2026, where market participants formally adopted the benchmark. With the CBN acting as the administrator, the NOFR positions Nigeria alongside international standards such as the Secured Overnight Financing Rate (SOFR) in the United States, the Sterling Overnight Index Average (SONIA) in the United Kingdom, and the Euro Short-Term Rate (€STR) in the Eurozone.
Unlike the Monetary Policy Rate (MPR), which is set by the CBN’s Monetary Policy Committee, the NOFR is a market-based reference rate. It reflects the actual cost of overnight secured funding in the Nigerian interbank market, utilizing data from real transactions rather than subjective estimates.
The apex bank confirmed that the rate will be published daily at 10:00 a.m. Lagos time on the business day following the fixing day. This transition to a transaction-based model aims to reduce the risk of manipulation and ensure that financial contracts are priced fairly.
The CBN has established strict criteria for the data used to calculate the daily rate. Eligible transactions are limited to Nigerian Naira-denominated overnight secured repo transactions reported by eligible banks, with a minimum transaction size of NGN 5 billion.
To ensure the rate is not skewed by outliers, the CBN employs a volume-weighted trimmed mean calculation. Under this methodology, the lowest 10 percent and highest 10 percent of transaction volumes are removed, and the remaining rates are averaged to produce the final figure. In instances where market data is insufficient, the NOFR will default to the rate of the previous business day, a move the bank says will be clearly disclosed to the public.
While the NOFR is expected to influence the pricing and valuation of various financial instruments, its effect on borrowing costs remains nuanced. The bank noted that while certain corporate, structured, or syndicated loans may reference the NOFR, the benchmark itself does not dictate total borrowing costs. These costs continue to depend on individual credit risk, loan tenors, and specific contractual terms.
For the average retail customer, the benefits are expected to be indirect but foundational. The CBN indicates that retail interest rates will still be determined by individual banks based on operating expenses and funding costs, but the presence of a credible benchmark will provide greater stability and confidence in the wider financial system.
“The Bank will ensure governance, transparency, and regular publication of the rate,” the statement noted. “NOFR strengthens transparency, fairness, and stability in Nigeria’s financial system while aligning domestic markets with global benchmark standards.”
To maintain the integrity of the new system, the CBN has committed to a yearly methodology review and a strict correction policy. Adjustments will only occur in exceptional cases involving material errors of five basis points or more, with all corrections publicly labeled to maintain market trust.
