Basis Points Definition

Definition of Basis points. basis points is used as a description of measuring changes in the percentage rates.

Example of Basis Points Use

If the Central bank cut base rates by 0.25%. We often say there has been a cut of 25 basis points.

If rates were increased from 2% to 3% we say there has been a rise of 100 basis points

The benefit of using basis points is that it avoids ambiguity in percentage changes.

For example, if we say interest rates have increased by 1%, we usually mean they have increased by 1% point from 2% to 3%. A 1% increase of 2% would leave interest rates at 2.01%


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