1. SUPPLY OF MONEY

MONETARY POLICY

This refers to the actions taken by a central bank (BSP) to manage the supply of money and interest rates to achieve specific economic objectives, such as controlling inflation, managing unemployment, and stabilizing the currency.

CENTRAL BANKS

_____, such as the Federal Reserve in the United States, the European Central Bank in the Eurozone, and the Bank of England, play a critical role in the functioning of modern economies.

OPEN MARKET OPERATIONS (OMO)

INTEREST RATES

RESERVES REQUIREMENTS

QUANTITATIVE EASING (QE)

MONETARY POLICY TOOLS

OPEN MARKET OPERATIONS (OMO)

The buying and selling of government securities by the central bank to control the money supply. Buying securities increases the money supply, and selling securities reduces it.

INTEREST RATES

Central banks influence short-term _____, particularly the policy or discount rate, which impacts borrowing costs in the broader economy.

RESERVES REQUIREMENTS

Central banks may require commercial banks to hold a certain percentage of their deposits in reserve, impacting the banks' lending capacity.

QUANTITATIVE EASING (QE)

A non-traditional monetary policy tool where a central bank buys long-term securities to inject liquidity into the economy.

Price Stability

Economic Growth

Financial Stability

Foreign Exchange Management

KEY ROLES OF THE BSP IN MONETARY POLICY

PRICE STABILITY

The BSP aims to maintain low and stable inflation, targeting an inflation rate of 2% to 4% annually.

PRICE STABILITY

_____ ensures that the purchasing power of the peso remains stable, which is essential for long-term economic growth.

ECONOMIC GROWTH

By controlling inflation and stabilizing the financial system, the BSP helps foster an environment conducive to sustainable _____.

ECONOMIC GROWTH

The central bank strives to balance the need for _____ expansion with its primary goal of price stability.

FINANCIAL STABILITY

The BSP also ensures the stability of the _____ by regulating banks and other financial institutions, mitigating systemic risks, and preventing financial crises.

FINANCIAL STABILITY

A sound _____ system supports efficient credit flow, which is critical for economic activity.

FOREIGN EXCHANGE MOVEMENT

The BSP is also responsible for managing the country's _____ reserves and ensuring the stability of the Philippine peso.

FOREIGN EXCHANGE MOVEMENT

This includes interventions in the foreign exchange market to stabilize the currency when necessary.

Inflation Targeting

Monetary Policy Decision Making

Transmission Mechanism

MONETARY POLICY FRAMEWORKS IN THE PHILIPPINES

BSP has a flexible inflation targeting framework

This means that it adjusts monetary policy to achieve a stable inflation rate. The BSP's inflation targets are typically set for a period of two to three years.

INFLATION TARGETING

The BSP uses this to guide monetary policy decisions. It aims for an annual inflation rate of 2% to 4%.

INFLATION TARGETING

This target is designed to anchor inflation expectations and provide a clear signal to businesses, investors, and consumers.

MONETARY POLICY DECISION MAKING

The BSP's Monetary Board is responsible for setting monetary policy. The Board meets regularly to review economic conditions, including inflation trends, economic growth, and global factors, to determine whether monetary policy needs to be adjusted.

TRANSMISSION MECHANISM

The effects of monetary policy decisions are transmitted to the economy through various channels. Changes in interest rates influence consumer spending, investment, and borrowing. These in turn affect aggregate demand, inflation, and overall economic activity.

Inflation Volatility

Global Economic Conditions

Political Factors

Managing Growth And Stability

MONETARY POLICY CHALLENGES IN THE PHILIPPINES

INFLATION TARGETING ADJUSTMENTS

COVID-19 PANDEMIC RESPONSE

MANAGING EXCHANGE RATE VOLATILITY

RECENT MONETARY POLICY ACTIONS IN THE PHILIPPINES

INFLATION VOLATILITY

The Philippines has historically faced _____ due to factors like fluctuations in global oil prices, weather conditions (which can affect food supply), and external economic shocks. The BSP has to be adaptive to such changes.

GLOBAL ECONOMIC CONDITIONS

External factors, such as global financial market instability, changes in the prices of key imports (e.g., oil), and shifts in global trade patterns, can impact the Philippine economy and its inflation outlook.

POLITICAL FACTORS

The BSP operates independently, but political pressures may sometimes arise, especially during times of economic difficulties. Maintaining credibility and ensuring that monetary policy decisions are made based on sound economic principles is essential.

MANAGING GROWTH AND STABILITY

The BSP must carefully balance promoting economic growth while controlling inflation. During periods of high growth, inflationary pressures can rise, requiring the BSP to adjust its policy stance.

INFLATION TARGETING ADJUSTMENTS

In response to global commodity price shocks and domestic factors, the BSP has occasionally adjusted its policy stance, raising interest rates or using other tools to ensure inflation remains within the target range.

COVID-19 PANDEMIC RESPONSE

The BSP implemented an expansionary monetary policy to support the economy. It reduced policy interest rates to historically low levels, lowered the reserve requirement for banks, and launched various liquidity-boosting measures to help businesses and consumers.

MANAGING EXCHANGE RATE VOLATILITY

The BSP has occasionally intervened in the foreign exchange market to stabilize the Philippine peso, especially during periods of extreme volatility driven by global economic conditions.

MONETARY POLICY

in the Philippines, led by the Bangko Sentral ng Pilipinas, plays a crucial role in maintaining price stability, supporting economic growth, and ensuring the overall financial system's stability.

interest rate adjustments and open market operations

By using various monetary policy tools, like _____, the BSP helps mitigate inflationary pressures and stabilize the economy.

external shocks and inflation volatility

BSP faces challenges such as?

the nation's financial health

Understanding the BSP's monetary policy framework is essential for grasping how the central bank influences the broader economy and how it contributes to WHAT?