What is a basis point (BP) defined as?

A basis point (BP) is defined as one one-hundredth of one percent. This means that one basis point equals 0.01% or 0.0001 in decimal form. Basis points are commonly used in finance to describe changes in interest rates, bond yields, and other percentages that need to be conveyed with precision. For example, if a central bank raises interest rates by 25 basis points, it effectively means that the rates have increased by 0.25%.

Understanding basis points is essential in the financial sector, as they provide a clear and standardized method for discussing very small changes in percentages, which is crucial for analysts and practitioners who need to manage and communicate financial data accurately.