What is a Base Point in Economics? What does it mean?

What is a Base Point in Economics
What is a Base Point in Economics

One of the concepts frequently expressed in economics is the basis point. Base point is a term associated with interest. Every 100 basis points represents the 1 percent interest rate. If an interest rate of 1700 basis points is applied in the country and this interest rate is reduced by 200 basis points, then the interest rate has decreased from 17 percent to 15 percent. Likewise, if the rate is increased by 1700 basis points from 200 basis points, it will mean that it has been increased from 17 percent to 19 percent. Changes in interest rates do not always change by 100 basis points. There are also 50 basis points changes. As a result of these changes, the interest rate decreases or increases by 0.50. Therefore, there is a change of less than 100 percent for the interest rates below 1 basis.

Why is Base Points Decreased?

Sometimes, there is a decrease in points on various basis for interest. The reason for the decrease in the base point is to increase the mobility in the economy. In countries with high interest rates, investments decrease as capital owners put their money in banks. At the same time, if the interest rates are high, people cannot get loans from the bank and cannot buy various needs such as house and car. For this reason, interest can be reduced and the economy tries to revive.

What Are the Consequences of Lowering Base Points?

Some differences can be seen in economic indicators after the central bank's announcement of a base point reduction. Increasing or decreasing the interest rate has various effects.

Some of the effects of base point reduction are as follows:

  • There is an increase in the exchange rate.
  • People who keep their money at interest begin to direct their money to different investment instruments.
  • There may be a decrease in the money coming to the country for the purpose of receiving interest from abroad.
  • There is an increase in investments within the country

These are the developments that can be experienced after the base fall in interest rates.

Why is Base Points Increased?

In the economy, sometimes the basis point is lowered, and sometimes it is increased. When interest rates remain low compared to inflation, investors begin to invest their money in different investment instruments. In this case, different investment instruments can be valued uncontrollably. The first of these is foreign currency. Since the interest rates are low, if most people turn to foreign currencies, the exchange rate increases. In such cases, the interest can be increased to make the money appreciate.

What Are the Consequences of Raising Base Points?

There may be an increase in the interest rate on various bases, and some effects may occur as a result of all of these. The size of the effects that will occur when the interest rate is increased or decreased is related to the numbers. The effects that will occur as a result of an increase of 200 bases and the effects that will occur after an increase of 400 bases are not the same. However, the events that will happen are mostly similar.

Some developments that may occur after the base point increase are as follows:

  • There is a decrease in the exchange rate
  • Inflation may fall
  • Money transfers take place from foreign countries to countries with high interest rates.

If there is a base increase in interest, how much the foreign currency will decrease or how much money will come to the country depends on how many bases of increase there is.

Source: https://www.ekogundem.com.tr/

📩 29/10/2021 15:42

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