CBN Launches New Interbank Benchmark Rate to Reform Loan Pricing
By Patience Ikpeme
The Central Bank of Nigeria (CBN) on Monday officially introduced the Nigerian Overnight Financing Rate (NOFR), unveiling a major financial market reform designed to strengthen monetary policy transmission, deepen local financial markets, and improve transparency in loan pricing.
Speaking at the formal launch in Abuja, the Governor of the CBN, Mr. Olayemi Cardoso, described the new benchmark as a foundational structural shift aimed at building a more resilient, efficient, and credible financial system capable of supporting sustainable economic growth.
A primary objective of the initiative is to repair the transmission of monetary policy decisions across the economy, ensuring that actions taken by the apex bank translate directly into borrowing costs and financial market conditions. In practical terms, the NOFR is expected to narrow the gap between the benchmark interest rate set by the CBN’s Monetary Policy Committee (MPC) and the actual interest rates paid by businesses and households when borrowing from commercial banks.
Under the previous system, changes in the Monetary Policy Rate (MPR) did not always flow quickly or fully into lending rates across the banking sector due to structural disconnects and the absence of a robust market benchmark. With the introduction of the NOFR, market participants anticipate tighter alignment between monetary policy decisions, money market conditions, banks’ funding costs, and consumer lending rates.
“What we are attempting to do here is to ensure that we have a more effective monetary policy transmission mechanism supporting the delivery of the price stability mandate of the CBN. This is very, very critical. This is very important,” Cardoso said.
The Governor explained that an efficient transmission mechanism is essential to the CBN’s ability to manage inflation. He recalled that when the current CBN leadership assumed office, deep-seated weaknesses in monetary policy transmission posed significant hurdles to policy implementation.
“I recall that when we first took office, one of the issues that we were challenged with at the time was the hosting of the MPC,” Cardoso stated, noting that simply convening meetings without fixing the underlying structural flaws in the financial system would not have produced the desired outcomes.
The Governor pointed out that benchmark interest rates are central to modern financial systems because they represent the true price of money at any given point in time. He stated that a benchmark can only gain widespread acceptance if it emerges from a transparent, trusted, and well-governed framework protected against manipulation, noting that recent global reforms have pushed financial markets away from judgment-based rates toward transaction-based benchmarks.
Developed in collaboration with the Financial Markets Dealers Association (FMDA) and with technical support from the European Bank for Reconstruction and Development (EBRD), the NOFR is designed as a transaction-based overnight secured interbank financing rate that reflects the true cost of overnight funding in Nigeria’s money market.
“This is a fundamental shift that aligns Nigeria with global best practices in benchmark rate reform and strengthens confidence in our financial markets,” Cardoso said. “The result of all of that is a deepening of our financial markets. Markets get deeper when they are trusted and when they are credible.”
Cardoso stated that the institutions built today will determine Nigeria’s ability to compete tomorrow. Looking toward future financial innovations, he added, “Nobody wants to be left behind, and certainly we in Nigeria are not one of those that will be caught napping.”
The benchmark is set to support treasury and liquidity management operations, improve the pricing of financial contracts, and facilitate the development of derivatives and structured products. For businesses and bank customers, the framework will bring greater transparency to loan pricing while serving as a reference point for pricing wholesale and institutional deposits.
“The success of NOFR will depend not only on its design, but on its broad acceptance and consistent usage across the financial system,” Cardoso said, urging all stakeholders to actively integrate the rate into their daily operations.
Also speaking at the event, the Deputy Governor, Economic Policy, Mr. Philip Ikeazor, described the launch as an important milestone in the evolution of Nigeria’s financial markets. He noted that introducing a credible market reference point represents progress, modernization, and a commitment to building a stronger financial system for the future.
In a goodwill message, the Managing Director of Access Bank, Mr. Roosevelt Ogbonna, speaking through the bank’s Treasurer, Mr. David Enilolobo, stated that the country’s financial markets had long relied on benchmark structures built on contributions rather than actual transactions.
“NOFR is that something more,” Ogbonna said, describing the benchmark as a transaction-based, overnight, government-collateralized borrowing rate built on what the market actually did rather than what participants believed it should have done. He added that stronger market structures attract capital, reduce cross-currency risks, and provide offshore investors with benchmarks they can trust.
