Basis Point

Meaning:

A basis point (bps) is a unit used to measure small changes in interest rates,  yields, or other financial percentages. One basis point equals 0.01% (or one-hundredth of a  percent), so 100 basis points equal 1%.

Example: 

If the Reserve Bank of India (RBI) raises the repo rate from 6.50% to 6.75%, that’s  an increase of 25 basis points (bps).

How to understand basis points:

Basis points provide a precise way to describe small changes in financial percentages.

For instance, if a bond yield drops from 7.10% to 6.95%, it has decreased by 15 basis points.

Importance of Basis Points:

They help avoid confusion when discussing changes in interest rates.

Basis points are commonly used in financial markets, such as in monetary policy  announcements and loan rates.