Basis Point

Meaning:

A basis point (bps) is a unit of measurement used to quantify changes in interest  rates, yields, or other financial percentages. One basis point is equivalent to 0.01% (one-

hundredth of a percent), meaning that 100 basis points equal 1%.

Example: 

For example, if your loan interest rate increases from 8.00% to 8.50%, the change  is 50 basis points (or 0.50%).

How to understand basis points:

Basis points offer a precise way to communicate small changes in financial metrics.

For instance, if the RBI increases the repo rate from 6.50% to 6.75%, that’s a rise of 25 basis  points.

Importance of Basis Points:

They enhance clarity in financial communication, especially when discussing interest rates or  investment returns.

Basis points are widely used across financial markets, including monetary policy  announcements, bond yields, and loan rates.