•Provides benchmark for pricing loans, deposits
By Emma Ujah, Abuja Bureau Chief
The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, yesterday, launched the Nigerian Overnight Financing Rate (NOFR), to guarantee greater transparency in the financial market.
The NOFR is a daily benchmark interest rate introduced by the CBN in collaboration with the Financial Markets Dealers Association (FMDA).
NOFR reflects the actual, real-time cost of secured, short-term borrowing between financial institutions.
Speaking at the launch in Abuja, Cardoso described the benchmark interest rates as, “The rate at which everyone agrees, represents a true reflection of the price of money at a particular point in time, and it is the backbone of any modern financial system.”
He said, however, “Before a benchmark can be widely accepted, it must be an output of a trusted, well-governed, and transparent financial market framework with an underlying administrative process and methodology that protects against any form of manipulation.”
The Governor argued that financial systems, much like economies themselves, cannot remain static, saying, “They must evolve continuously to reflect changing realities, respond to emerging opportunities and create stronger foundations for future growth.”
Recent global developments, Cardoso said, have underscored this need, resulting in financial systems transitioning from judgment-based or indicative rates to transaction-based benchmarks that reflect underlying market realities.
He said, the CBN, in collaboration with the Financial Markets Dealers Association, FMDA, and with technical support from the European Bank for Reconstruction and Development, EBRD, developed the NOFR as “a credible and robust benchmark derived from actual market transactions.”
“The NOFR has been designed as a transaction-based overnight secured interbank financing rate, reflecting the true cost of overnight funding in the Nigerian money market by anchoring the benchmark on observable transactions,” he added.
On the impact of the rate on the market, Mr. Cardoso said, “NOFR enhances market integrity and credibility, it reduces reliance on subjective estimates and it minimizes the risk of manipulation, and finally improves price discovery and transparency.”
He described the rate as, “a fundamental shift that aligns Nigeria with global best practices in benchmark rate reform and strengthens confidence in our financial markets.”
The outcome, he said, would be a deepening of Nigeria’s financial market which the regulators crave. The governor said that NOFR would create a basis for transparent pricing of loans and deposits in the money market.
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