CBN Unveils New Benchmark Rate to Improve Transparency in Banking System
The Central Bank of Nigeria has introduced a new benchmark interest rate, the Nigerian Overnight Financing Rate, as part of efforts to improve transparency and efficiency in the country’s financial system.
The new rate will serve as the official reference for overnight lending between banks, reflecting the actual cost of short-term funds in the interbank market. Unlike policy rates set by the apex bank, it is based strictly on real transactions.
The move is expected to strengthen price discovery in the money market, support better pricing of financial instruments, and improve the transmission of monetary policy.
The rate will be calculated daily using verified interbank transactions that meet specific conditions, including a minimum value of five billion naira and adequate security backing. It will be published at 10 a.m. on the next working day.
Where there are insufficient qualifying transactions, the previous day’s rate will be retained, with full disclosure to the market.
The introduction of the benchmark places Nigeria in line with global financial systems where similar rates are used to guide lending and investment decisions.
While the new rate may be adopted in pricing loans and other financial contracts, the Central Bank noted that it does not determine the full cost of borrowing. Banks will continue to set their lending rates based on risk, operating costs, and loan duration.
The apex bank is expected to oversee the administration of the rate and ensure regular review of its methodology to maintain accuracy and credibility.
