75 basis points is 0.75%.
The base point is a unit that means different things in different situations.
One basis point is 0.01%, so 75 basis points is 0.75%.
So 75 basis points means a 0.75 per cent increase in interest rates.
So, this increase in interest rate is actually the interbank lending market rate, mainly the overnight lending rate.
In some cases, financial institutions may encounter a shortage of short-term liquidity, so they may turn to peers to borrow money in the interbank market.
The Federal Reserve is also a player in this market, and it is the most important player.
Because of this, the Fed has a lot of say in determining interbank lending rates.
When the Fed announces an interest rate hike, other institutions have to borrow money from the Fed, and the interest rate at which they borrow money goes up.
Others who have lent out their money may become jealous of higher interest rates and follow suit.
Not even if no one but the Fed is willing to raise interest rates.
Because if it doesn’t raise interest rates, everyone will borrow from it, and where does an institution have that much money to lend?
Eventually interest rates will have to rise to ease the pressure on themselves.
So, after the Fed raises interest rates, the interest rates of other institutions that lend money will most likely go up.
