Olamilekan Abayomi
The Central Bank of Nigeria (CBN) in collaboration with the Financial Markets Dealers Association (FMDA) has introduced the Nigerian Overnight Financing Rate (NOFR) as a new standardized money market benchmark. Announced via circular by Acting Director, Corporate Communication, Mrs. Hakama Ali, the NOFR is designed to promote consistent pricing of money market instruments and strengthen monetary policy transmission.
The rollout followed a stakeholder engagement session held on February 27, 2026, where market participants formally adopted the benchmark, with regulatory approval obtained thereafter. The CBN now serves as the benchmark administrator and is responsible for governance, transparency, and regular publication of the rate.
NOFR was developed to align Nigeria with global best practices for short-term interest rate benchmarks. The CBN said it will improve price discovery and transparency, enhance the effectiveness of monetary policy, support financial innovation, boost investor confidence, and strengthen risk management across the financial system. It positions Nigeria alongside established benchmarks like SOFR in the U.S., SONIA in the UK, €STR in the Eurozone, TONA in Japan, and JIBAR in South Africa.
The benchmark captures the cost of unsecured overnight lending in the interbank market — essentially what banks charge one another for one-day funds. Rates like the Overnight (O/N) rate and Open Repo (OPR) rate are key indicators of system liquidity. For context, Cowry Asset data from November 26, 2025 showed the O/N rate at 22.69% and OPR at 22.50% after the CBN’s corridor adjustment. By March 3, 2026, the O/N rate was 22.35% while OPR held at 22.00%, even as banks parked ₦4.3 trillion at the CBN’s Standing Deposit Facility.
Introducing NOFR comes amid a broader shift in CBN’s monetary posture. After maintaining a tight stance through 2023-2025, the Monetary Policy Committee delivered its first rate cut of 2026 in February, lowering the MPR by 50 basis points to 26.5% from 27%. It also adjusted the asymmetric corridor to +50/-450 basis points from +250/-250bps, which reduced the Standing Deposit Facility rate to 22.5% and the Standing Lending Facility rate to 27.5%. Market analysts saw this as a “subtle shift towards easing” that triggered repricing across fixed-income instruments.
The NOFR is expected to give the CBN and market participants a clearer reference for overnight funding costs, improving how policy changes pass through to lending and deposit rates. Previously, overnight lending rates fluctuated sharply with liquidity moves — for instance, rising to an average of 12.5% from 9% when the CBN debited ₦364.2 billion from banks to enforce CRR and fund T-bill purchases. A standardized, published NOFR should reduce pricing inconsistencies and help anchor expectations.
Liquidity management remains central to the rate’s behavior. In January 2026, the CBN’s first OMO auctions attracted ₦2.727 trillion in subscriptions, with stop rates at 19.34%–19.40%, signaling the bank’s continued tight liquidity stance despite easing at the policy rate level. OMO maturities and CBN interventions still swing interbank rates: a ₦360 billion OMO maturity in late November 2025 added to system liquidity and helped push O/N rates down 198 basis points.
For banks, corporates, and investors, NOFR provides a transparent anchor for pricing everything from repos and commercial papers to derivatives. The CBN believes this will deepen Nigeria’s money market, make risk management more effective, and give the MPC a more reliable transmission channel as it balances inflation control with growth. With headline inflation easing to 15.10% in January 2026 from 15.15% in December 2025, the CBN has signaled a gradual pivot from defense to recalibration — and NOFR is the plumbing that helps that shift work.
