A basis point (bp) is one-hundredth of a percentage point (0.01%); 25bp equals 0.25 percentage points, the conventional increment of a single central-bank rate move. Policymakers quote rate changes, yields, and spreads in basis points to avoid the ambiguity of percentage-of-a-percentage phrasing.
How it works
1 bp = 0.01% = 0.0001 in decimal form, so 100 bp = 1 percentage point. A "25bp cut" lowers a policy rate by 0.25pp — e.g. from 4.50% to 4.25%. The unit removes ambiguity: a move "from 4% to 5%" is +100bp (absolute), not a +25% relative change.
Why it matters now
After the 2022–23 hiking cycle, the Fed and ECB shifted to easing in increments measured in basis points; the market debate in 2025–26 is whether each meeting delivers a standard 25bp step, a larger 50bp move, or a pause, making the unit the basic currency of policy expectations.
Example
On 18 September 2024 the FOMC opened its easing cycle with a 50bp cut, taking the federal funds target range from 5.25–5.50% to 4.75–5.00%. Subsequent meetings in November and December 2024 each delivered a standard 25bp cut, lowering the range by 0.25pp per step to 4.25–4.50%.
Frequently asked
- What is a basis point?
- A basis point is one-hundredth of a percentage point, equal to 0.01% or 0.0001 in decimal form. One hundred basis points equal one full percentage point. Traders and central banks use the unit to quote interest-rate changes, bond yields, and spreads precisely — a rate move from 4.00% to 4.25% is a 25 basis point, or 25bp, increase.
- How much is 25bp?
- 25bp equals 0.25 percentage points, or one quarter of one percent. It is the conventional size of a single central-bank rate adjustment — for example, a 25bp cut lowers a policy rate from 4.50% to 4.25%. Central banks typically move in 25bp increments, stepping up to 50bp or 75bp only when conditions demand faster action.
- Why do central banks move in 25bp increments?
- Central banks move in 25bp increments to deliver predictable, gradual policy changes that markets can anticipate and price without disruptive surprises. A quarter-point step is large enough to signal intent but small enough to limit volatility. Larger 50bp or 75bp moves are reserved for episodes — like the 2022 inflation surge or the September 2024 easing pivot — that warrant accelerated action.
- Why quote rates in basis points instead of percentages?
- Basis points remove the ambiguity of percentage-of-a-percentage phrasing. Saying a yield rose 'from 4% to 5%' could mean +1 percentage point (absolute) or +25% (relative). Quoting '+100bp' is unambiguous. The convention matters most for small moves: '25bp' is cleaner than '0.25 percentage points' and avoids confusion in spread and yield reporting.