The Central Bank of Nigeria, in collaboration with the Financial Markets Dealers Association, has introduced the Nigerian Overnight Financing Rate (NOFR) as the country’s new benchmark for pricing short-term funds in the interbank market.
The reform represents a structural shift in Nigeria’s money market architecture, replacing legacy reference rates such as the Open Buy-Back (OBB) and Overnight (OVN) rates with a transaction-based benchmark that reflects actual funding conditions.
NOFR Benefits
NOFR is designed to capture the true cost of unsecured overnight borrowing among banks, using real transaction data rather than indicative quotes. This aligns Nigeria with post-crisis global standards that favour risk-free or near risk-free reference rates.
By anchoring pricing to observed trades, NOFR is expected to Improve rate transparency and credibility, enhance monetary policy transmission, enable more accurate valuation of financial instruments and strengthen risk management and liquidity pricing.
The introduction of NOFR is part of a broader push to modernise Nigeria’s financial system, improve investor confidence, and position the country as a more competitive destination for global capital.
In practical terms, it marks Nigeria’s transition toward a data-driven, market-reflective interest rate regime, a foundational step for deeper capital market development. This transition mirrors global reforms that followed the decline of quote-based benchmarks like LIBOR.
Nigeria now joins major financial systems that have adopted similar benchmarks, including:
- Secured Overnight Financing Rate (SOFR) in the United States
- Sterling Overnight Index Average (SONIA) in the United Kingdom
- Euro Short-Term Rate (€STR)
- Tokyo Overnight Average Rate (TONA)
Regionally, it aligns with Johannesburg Interbank Average Rate (JIBAR), reinforcing convergence toward globally accepted pricing frameworks.
Market Impact
Since its rollout, NOFR has printed in the 22.00%–22.04% range, reflecting Nigeria’s tight liquidity conditions and elevated interest rate environment. Daily transaction volumes exceeding ₦4 trillion suggest strong underlying market activity and depth.
The benchmark is expected to become the reference rate for:
- Treasury bills and short-term government securities
- Repurchase (repo) agreements
- Derivatives and structured products
- Loan pricing frameworks across financial institutions
Policy and System Implications
For policymakers, NOFR provides a cleaner signal of liquidity conditions, improving the effectiveness of monetary tools deployed by the central bank.
For market participants, the shift reduces basis risk associated with multiple inconsistent benchmarks and supports the development of forward-looking interest rate markets, including swaps and futures.
The CBN will act as administrator of the rate, with commitments to governance, methodology transparency, and regular publication—critical elements for credibility and adoption.
