Basis point

Also called: bp, bps · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT

Meaning

A basis point (bp, plural bps) is one-hundredth of a percentage point. So 1 bp = 0.01 percentage point, and 100 bps = 1 percentage point. It is the unit for small changes in interest rates and bond yields. Rates often move by small steps, and saying "25 basis points" is clearer than "a quarter of one per cent".

Formula: change in bps = change in percentage points × 100

Example

Between May 2022 and February 2023, RBI raised the repo rate (the rate at which RBI lends to banks) from 4% to 6.5%. That is a rise of 2.5 percentage points, or 250 bps. In the 2025 easing cycle, RBI cut the repo rate from 6.5% to 5.25% by December 2025, a cut of 125 bps. After December 2025, the Marginal Standing Facility (RBI's emergency window for banks) was set 25 bps above the repo rate, at 5.50%.

Don't confuse with

• Per cent change: A repo rate that moves from 4% to 5% has risen by 100 bps (1 percentage point). In per cent terms, though, it has risen by 25%, because 1 is 25% of 4. Basis points always measure the gap in percentage points. They never measure a relative change.

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• Banking, Credit Creation and Monetary Policy