Glossary term
Basis point
One hundredth of one percentage point. A 25 basis point cut is a quarter of one percent.
Interest rates are quoted in percentages, and small changes in a percentage are ambiguous in ordinary language: a move from 4% to 5% could be described as a one percent increase or a twenty-five percent increase. Basis points remove the ambiguity. That move is 100 basis points.
The abbreviation is bp, usually said “bip”. It is a unit of difference, not a unit of level: you would not say a rate is 425 basis points in ordinary usage, only that it moved by some number of them.
25 bp
0.25%
50 bp
0.50%
100 bp
1.00%
Where you will see it
FOMC decisions are almost always announced in 25 basis point increments. Bond yields, mortgage spreads and CBO interest-cost estimates are quoted the same way.
Related terms
Used in these explainers