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🇳🇬 Nigeria /Economy & Trade

CBN unveils new benchmark rate to boost financial market credibility

From The Punch · () English

Summarized and contextualized by DistantNews.

At a glance

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  • The Central Bank of Nigeria (CBN) has launched the Nigerian Overnight Financing Rate (NOFR), a new benchmark interest rate based on transactions.
  • NOFR aims to enhance transparency, improve monetary policy transmission, and deepen Nigeria's financial markets, aligning them with global standards.
  • The CBN developed NOFR in collaboration with the Financial Markets Dealers Association and the European Bank for Reconstruction and Development.

The Central Bank of Nigeria (CBN) has introduced the Nigerian Overnight Financing Rate (NOFR), a new transaction-based benchmark interest rate designed to bolster transparency and efficiency in the country's financial markets. Governor Olayemi Cardoso stated that this initiative is a key component of the CBN's strategy to foster a more resilient and credible financial system.

The introduction of NOFR represents a significant reform that reinforces the Central Bank of Nigeria’s commitment to building a more resilient, efficient, and credible financial services sector.

— Olayemi CardosoGovernor of the Central Bank of Nigeria, explaining the significance of the new benchmark rate.

Cardoso described NOFR as a significant reform that brings Nigeria's financial markets closer to international best practices. He emphasized that benchmark rates are crucial for modern financial systems, providing reference points for pricing financial instruments, managing liquidity, and transmitting monetary policy. The global trend, he noted, is shifting from judgment-based benchmarks to transaction-based rates to reduce manipulation risks and increase transparency.

The development of NOFR involved collaboration between the CBN, the Financial Markets Dealers Association, and technical support from the European Bank for Reconstruction and Development. The rate is designed as an overnight secured interbank financing rate derived from actual market activities, reflecting the true cost of overnight funding. This approach enhances market integrity, minimizes manipulation risks, and improves price discovery, thereby strengthening confidence and supporting market deepening.

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.

— Olayemi CardosoGovernor of the Central Bank of Nigeria, detailing the benefits of a transaction-based benchmark rate.

According to Cardoso, NOFR will serve as a reliable reference for treasury operations, liquidity management, loan pricing, and the development of sophisticated financial products. The increased transparency is expected to benefit businesses and borrowers by providing clearer insights into the pricing of loans and deposits within the banking system.

Markets get deeper when they are trusted and when they are credible.

— Olayemi CardosoGovernor of the Central Bank of Nigeria, on the impact of trust and credibility on financial markets.
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Originally published by The Punch. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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