Nigerian Overnight Financing Rate: CBN’s New Benchmark Reshaping Financial Market

For years, the Nigerian financial market operated with a patchwork of interest rate indicators, each serving a different purpose but none providing a single, transaction-based measure of the actual cost of overnight funding between financial institutions.

This is changing as the Central Bank of Nigeria (CBN), in collaboration with the Financial Markets Dealers Association (FMDA), has introduced the Nigerian Overnight Financing Rate (NOFR), a new benchmark designed to bring greater transparency, credibility and efficiency to the country’s money market.

More than just another interest rate published by the apex bank, NOFR represents a significant shift in how the price of money is determined, transmitted, and understood within the Nigerian financial system.

The benchmark, which became operational following its formal adoption by market participants in February 2026 and regulatory approval, is designed to reflect the actual cost of secured overnight Naira funding among eligible financial institutions. The CBN serves as its administrator and is responsible for its governance, transparency and regular publication.

Speaking at the formal launch of NOFR in Abuja in June, CBN governor Olayemi Cardoso described benchmark interest rates as fundamental building blocks of modern financial systems. He explained that the new benchmark was developed to provide a credible reference point based on observable market transactions, rather than on subjective estimates.

According to Cardoso, “By anchoring the benchmark on observable transactions, NOFR enhances market integrity and credibility, reduces reliance on subjective estimates, minimises the risk of manipulation, and improves price discovery and transparency.”

Unlike the Monetary Policy Rate, which is determined by the CBN’s Monetary Policy Committee as a policy signal, NOFR is intended to show what it actually costs eligible financial institutions to obtain secured overnight funding in the interbank market.

The CBN describes it as Nigeria’s overnight risk-free reference rate, reflecting the cost of secured overnight Naira funding among eligible financial institutions. The rate is therefore expected to provide a more reliable foundation for pricing financial instruments and contracts while supporting greater standardisation in the money market.

The benchmark is based on actual overnight secured transactions, meaning the rate is anchored in observable market activity. Eligible transactions are Naira denominated overnight secured repo deals by financial institutions, with a minimum value of N5 billion. NOFR is calculated using a volume-weighted trimmed mean to minimise the impact of unusually high or low transactions.

This transaction-based approach is important because benchmark rates have increasingly become central to the functioning of sophisticated financial markets.

In advanced economies, overnight reference rates such as 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 in the Eurozone and the Tokyo Overnight Average Rate (TONA) in Japan provide critical reference points for financial contracts and monetary market activity.

With NOFR, Nigeria is seeking to bring its domestic financial architecture closer to that of the international framework. The CBN has also noted that the benchmark complements African benchmarks, such as South Africa’s Johannesburg Interbank Average Rate (JIBAR).

At the end of the last Monetary Policy Committee meeting, Cardoso had pointed out that the benchmark was important, as it brings greater transparency to the determination of overnight rates, replacing a system in which banks simply quoted rates they believed reflected prevailing interest rates. “This system ensures that real transactional rates, as opposed to judgmental rates, are the ones being used. That’s very important,” he said.

Stating that Nigeria was not the first country to adopt a transaction-based benchmark, he noted that the move aligned with global financial market standards. He cited the United Kingdom’s transition from LIBOR to SONIA and similar benchmark reforms in the United States, saying Nigeria was now aligning its financial market with international best practices.

He added that greater synergy was expected between the Monetary Policy Rate and the NOFR, with the MPR serving as the general policy benchmark while the NOFR provides a clearer picture of the rates at which actual market transactions are executed. According to him, as Nigeria advances towards an inflation targeting framework, NOFR would become a key component of the monetary policy framework.

The NOFR reform is part of the broader restructuring of Nigeria’s financial system under CBN’s Governor Olayemi Cardoso, whose administration has pursued measures to strengthen monetary policy credibility, stabilise the foreign exchange market, reinforce the banking sector and deepen financial markets. The benchmark is also expected to improve monetary policy transmission by providing a clearer reference point for how policy decisions influence businesses, households and investors.

The gap between the CBN’s policy rate and the rates ultimately faced by borrowers has long been a major concern in the Nigerian economy. A more credible overnight benchmark could help improve the transmission of monetary policy by giving financial institutions and market participants a clearer reference point for short term funding costs.

For banks, the implications could extend beyond overnight borrowing as it serves as a reference for treasury operations, liquidity management, pricing of financial contracts and securities, risk management and the development of derivatives and other structured financial products.

Asides this, investors need reliable information about the cost of money, the pricing of assets and the risks associated with financial instruments. Where benchmarks are considered unreliable or vulnerable to manipulation, the credibility of the entire market can suffer.

For the CBN, its role as NOFR administrator goes beyond publishing the rate, as it is responsible for ensuring that the benchmark is calculated using an established methodology, published regularly and supported by sound governance. The rate which is now published on the apex bank’s data platform alongside other key financial indicators and, as of the latest available data, stood at 22 per cent, providing market participants with a daily reference point for overnight funding conditions, while early market activity suggests growing adoption.

In this sense, NOFR could become an important piece of infrastructure for Nigeria’s ambition to build a deeper and more sophisticated financial market. However, the success of the reform will ultimately depend on adoption.

Banks, dealers, investors and other financial institutions will need to incorporate the benchmark into their operations and financial contracts. Market participants will also need to generate sufficient transaction volumes to ensure that the benchmark continues to reflect genuine market conditions.

The CBN’s introduction of NOFR is therefore not simply about replacing one reference rate with another. It is part of a broader attempt to modernise the financial system by making market information more reliable, pricing more transparent and monetary policy transmission more effective.

As banks use a clearer reference point for funding, investors gain greater confidence in market pricing, and financial institutions develop products linked to a credible transaction-based benchmark, NOFR could become one of the less visible but more consequential components of Nigeria’s financial market architecture.

Indeed, the CBN’s own reform philosophy is increasingly focused on building institutions and market structures that can endure beyond individual policy decisions. As Cardoso put it at the launch, “Markets get deeper when they are trusted and when they are credible.”