Basis Point
a.k.a. bp, bps, Bip
One hundredth of one percent (0.01%).
In plain English
One hundredth of one percent (0.01%). Used to describe small changes in interest rates and yields.
A basis point is 0.01%. So 25 basis points is a quarter of a percent, and 100 basis points is one full percent.
It exists to stop confusion. If a 5% rate 'rises by 1%', is it now 6% or 5.05%? Say '100 basis points' and nobody can misread it. When a central bank 'hikes 25 bps', it raised its rate by 0.25 percentage points.
Worked example
Basis points to percent
- Rate is 4.50%.
- The central bank hikes by 25 basis points.
- 25 × 0.01% = 0.25%. New rate: 4.75%.
Bottom line: 25 bps = a quarter-point move.
Keep this word for good
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