What is bps?

BP (or bps) stands for Basis Point. In Chinese, it’s translated to “基点” (jī diǎn). It’s a ratio, meaning one ten-thousandth, which is one hundredth of one percent.

Why Do We Need This Concept?

Why not just say “one ten-thousandth” and introduce a new term instead?

Basis points are convenient and steady. Basis points are less ambiguous than percentages as they represent an absolute, set figure instead of a ratio.

For example, a 1 percent increase on a 5 percent interest rate could be interpreted as either 5.05 percent or 6 percent.

Conversely, if the rate increases by 100 basis points, the result is constant. The rate updates to 6 percent.

The introduction of bps is to make expression clearer and avoid ambiguity.

For example, suppose the central bank announces today that the LPR (Loan Prime Rate) increases by 1 percent. There are two different interpretations:

  • The new LPR is 5% + 1% = 6%
  • The new LPR is 5% + 5% * 1% = 5.05%

After introducing bps, when the central bank says add 100 basis points, everyone unambiguously knows the new LPR is 6%.