The unit central banks use to count interest rate moves.
A basis point is one hundredth of a percentage point. A hundred of them make up one percent. So when a central bank "cuts by twenty-five basis points," that's a quarter of one percent, not twenty-five percent. Traders use basis points instead of raw percentages because rate moves are usually small and a whole percentage point of change is a genuinely big deal. Saying "we cut by two basis points" versus "we cut by two hundred basis points" makes the size of the move obvious at a glance, which a stray decimal point in a percentage buries.
Part of the Open Bell Glossary — plain-English explanations of the terms that come up on the show. Browse every term.