CBN’s New NOFR: What it Means for Interest Rates and Markets

The Central Bank of Nigeria (CBN) has introduced a new money market benchmark, known as the Nigerian Overnight Financing Rate (NOFR).

The move, announced on April 17, 2026, by the CBN, in collaboration with the Financial Markets Dealers Association (FMDA), aims to improve transparency and strengthen confidence in the financial system.

It is designed to serve as Nigeria’s official overnight risk-free interest rate, reflecting the true cost of short-term borrowing between banks.

What is NOFR and Why It Matters

NOFR shows how much it costs banks to lend money to each other overnight. What makes it different is that it is based on actual transactions, not estimates or guesses.

The transactions are also secured, meaning they are backed by government securities such as treasury bills.

This makes the rate more reliable and reduces the risk of manipulation, which was a problem with older benchmark systems.

According to the CBN, it will publish NOFR daily at 10:00 a.m Lagos time.

The rate is calculated by removing unusually high or low transactions and averaging the rest, ensuring that the final figure reflects real market activity.

Importantly, NOFR is not the same as the Monetary Policy Rate (MPR). While the MPR is set by the central bank to guide the direction of interest rates, NOFR is a market-based rate that shows what is actually happening in the banking system.

The introduction of NOFR is expected to improve how financial products are priced, support better risk management, and boost investor confidence.

It also aligns Nigeria with global benchmarks such as SOFR in the United States, SONIA in the United Kingdom, €STR in the Eurozone, and TONA in Japan.

Why the Old System Changed

In a recent conversation on News Central TV, the Founder of The Money Wit Club, Ola Oladele, explained why the shift to NOFR became necessary.

“The first thing is to understand the foundation. This directly affects the interbank market—the market where banks lend to each other and where the central bank manages liquidity.

“What used to happen in the past was that the Financial Market Dealers Association would call specific banks and ask what rates they would offer for certain tenors.

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“This was similar to LIBOR in the UK. Over time, traders could influence these rates depending on their positions, rather than actual transactions. So the rate was not always based on real trades,” Oladele said.

LIBOR, which means London Interbank Offered Rate, was widely used globally, including in Nigeria, to price foreign currency loans and other financial instruments.

However, concerns over manipulation led to global reforms.

Oladele noted that benchmark rates are important because they serve as the base for pricing many financial instruments.

“For example, investment bankers used them to price instruments like commercial papers, adding a premium or discount.

“Now, the Central Bank has introduced the Nigerian Overnight Financing Rate (NOFR), which is based on actual secured transactions. This means the rates come from real trades backed by government securities.

“The key difference is that this rate is secured, while traditional overnight rates are usually unsecured, meaning they are based on ‘clean money’ without collateral. NOFR, on the other hand, is backed by assets like government treasury bills,” she said.

NOFR vs MPR: What’s the Difference?

Oladele explained that NOFR should not be confused with the Monetary Policy Rate.

“For example, if the rate is increased from 20% to 22%, the market adjusts accordingly. It is a policy signal, not a market rate. NOFR reflects actual market activity,” she said.

To simplify further, she used an everyday example.

“Think of it this way: if you lend money to a friend without any collateral, that is unsecured lending. But if you collect something valuable, like a car, as collateral, that is secured lending.

“In the financial market, treasury bills and government bonds are used as collateral. So when we say NOFR is secured, it means banks are lending money overnight against these instruments, and the rate reflects what actually happened in those transactions,” Oladele added.

What It Means for the Market

Also speaking, Investment Research Analyst at Meristem, Anita Obi-Ozomah, said the new rate will improve transparency and reliability in Nigeria’s financial market.

“This reflects real market data. When you have real market data, it improves transparency, which is what the Central Bank is trying to achieve.

“The previous overnight rate was unsecured, but this is a secured rate. It shows where the market is actually trading and gives clarity to everyone.

“It also improves reliability. In global markets, benchmarks like SOFR are used for pricing forward contracts and swaps,” Obi-Ozomah said.

She added that the new system will help investors and financial institutions make better decisions.

“It is a positive development, especially because it will be published daily, so market participants can clearly see where rates are and plan accordingly,” she said.

The Big Picture

For businesses and investors, NOFR provides a clearer view of market conditions and helps in pricing loans and other financial instruments more accurately.

For everyday customers, the benefits may not be immediate, but the improved transparency and stability can strengthen confidence in the banking system over time.

Admittedly, the NOFR marks a shift toward a more transparent and reliable financial market in Nigeria, where interest rates better reflect real economic activity.