MONETARY POLICY

The concept of
Monetary Policy
Monetary Policy consists
of the actions and decisions
made by the government to
create appropriate monetary
conditions.
•It is usually based on the
country’s fiscal policy.
•In the Philippines, the
monetary policy is
implemented by the
Monetary Board through
the Central Bank of the
Philippines
Objectives of
Monetary Policy
• More stable price level
• Opportunity for full
employment
• Low and stable rate of
inflation
• Orderly foreign exchange
market
• Stable foreign exchange
market
• Adequate level of foreign
exchange reserves.
Tools of Monetary Policy
The central bank or
the monetary authorities
of a country have three(3)
instruments or tools by
which they can influence
the money supply.
First Tool: Open Market
Operation
In this tool, the central
bank may buy or sell
government bonds or
securities or instruments in
the open market.
Second Tool: Changing the
Reserve Ratio
Banks are required by the
government to have reserves,
which means that they should
set aside a certain percentage
of the amount of deposits
they have.
 This percentage is called
reserve ratio.
Third Tool: The Discount Rate
Commercial banks also
borrow money, but not
only from the central bank.
Situation A: Recession

Buy Securities

Reduce
RECESSION
Reserve Ratio

Lower
Discount Rate
 During a recession, the
central bank may buy
securities to increase the
reserves, reduce the reserve
ratio to further increase
their reserves,
and lower the discount
rate to encourage
commercial banks to
borrow from the central
bank to add to their
reserves.
Situation B: Inflation

Sell Securities

Increase
INFLATION
Reserve Ratio

Raise
Discount Rate
 During inflation, the
central bank may sell
securities to reduce the
reserves of commercial
banks, increase the reserve
ratio to further decrease
theirs reserves,
and raise the discount
rate so that commercial
banks will not be
encouraged to borrow
from the central bank.
Philippines Monetary Policy
As mandated by R.A. 7653,
the main objective of this is to
promote a low and stable
inflation and price stability to a
balanced and sustainable
growth of the economy.
The Inflation Target

The inflation target set

by the BSP is based on the
average year-on-year
change in the consumer
price index (CPI) over the
calendar year.
The Monetary And
Financial Sectors

The Bangko Sentral ng

Pilipinas is only the central
financial authority in the
country.
However, it is not the only
financial institution that
offers monetary and
financial services. There
are also institutions called
banks, which are also a
main component of the
country’s monetary sector.
The Philippines Banking System

 Universal and Commercial

banks
-These have the largest
resources and offer the
widest services.
 Thrift Banks
- consist of savings and
mortgage banks, private
development banks, stock
savings and loan
associations and
microfinance thrift banks.
 Rural and Cooperative
Banks
- these are very
popular in the provinces
and in rural areas.
 Microfinance Banks
-are the latest in the
banking system and focus on
providing loans and financial
services for the micro-
enterprises of low-income
individuals and families
Aside from those, there are
also other financial institutions
that provide financing. First is
Cooperatives, which are
organized by the people
themselves who become part-
owners or shareholders.
Pawnshops also provide small
loans to people on the basis of
a physical collateral or
guarantee, such as jewelry or
household appliances.
Learning About Money

‘’money makes the

world go round’’
What is money?
In economics, money may be
defined as follows:
 Money is any common
medium of exchange
acceptable in payment for
goods/services/for the
settlement of debts.
 Money is what we use to buy
things with.
Money is anything generally
acceptable as a medium of
exchange.
 Although money may not
be used in all economic
activities, it is money which
makes economic
transactions easier.
 Functions of Money

 Medium of Exchange
-this is the foremost
function of money.
-it serves as a convenient
tool for the exchange of
goods.
 Measure of Value
-people use money as a
standard in measuring the
value or worth of goods and
services.
 Store of Value
-money is a good way to
store wealth because it is
very liquid, meaning the
moment you have it you can
immediately spend it.
Features of Money
 General Acceptability
- individuals and businesses
accept money as part of long
business practice, and
generally trust its
value, anywhere.
 Legal Tender
- money is declared as a
legal tender by
government, which means
that its acceptability and
legality are derived from
the law.
 Divisibility
- money, even when
divided into
denominators, has the
quality of divisibility.
Recognizable
- part of the acceptability
of money is its being
recognizable by all sectors of
the economy.
Money in the Philippines

The basic unit of

monetary value in the
Philippines is the peso,
represented by the letter P
traversed by an equal sign.
The Bangko Sentral ng Pilipinas

As part of the
country’s monetary policy,
the money supply is
controlled and managed
by the central bank.
Highlights of Central Banking
History
• 1990 – The First Philippine
Commission placed all banks
under the Bureau of Treasury.
• 1929 – The Bureau of
Banking under the
Department of Finance
• 1939 – Under the
Commonwealth government
• 1946 – a joint Philippine-
American Finance
Commission
• 1947 – Central Bank
council was formed.
• 1948 – a bill establishing
the Central Bank of the
Philippines was submitted to
Congress by Pres. Roxas.
• 1949 – The Central Bank of
the Philippines was formally
inaugurated.
• 1972 – Presidential Decree
No. 72 was issued.
• 1981 – Presidential Decree
No. 1771 was issued
• 1986 – composition of the
Monetary Board was
amended.
• 1993 – The Bangko
Sentral ng Pilipinas was
formally established.
Vision and Mission of the BSP
VISION
The BSP, imbued with
the values of integrity,
excellence and patriotism,
aims to be a world-class
monetary authority
And a catalyst for a globally
competitive economy and
financial system that
delivers a high quality of
life for all Filipinos.
MISSION
BSP is committed to promote
and maintain price stability and
provide proactive leadership in
bringing about a strong financial
system conductive to a balanced
and sustainable growth of the
economy.
Towards this end, it shall
conduct sound monetary
policy and effective
supervision over
financial institutions
under its jurisdiction.
Overview of BSP Functions
and Operations
• Liquidity Management
• Currency Issue
• Lender of Last Resort
• Financial Supervision
•Management of Foreign
Currency Reserves
• Determination of
Exchange Rate Policy
• Other Activities
The Monetary Board
Chairman: Amando M.
Tetangco, Jr.
Members: Cesar V. Purisima
Alfredo C. Antonio
Ignacio R. Bunye
Peter B. Favila
Felipe M. Medalla
Armando L. Suratos
Major Functions:
1. Issue rules and regulations.
2. Direct management,
operations, and
administration of BSP…
3. Establish a human
resources management
system…
4. Adopt an annual budget
and authorize such
expenditures by BSP…
5. Indemnify its members
and other officials of
BSP…
The Governor
The governor is the chief
executive officer of BSP and
is required to direct and
supervise the operations and
internal administration of
BSP.
Governor's duties and
responsibilities:
1. Prepares the agenda…
2. Executes and administers
policies and measures…
3. Appoints and fixes the
remunerations and other
emoluments…
4. Renders
opinion, decisions, or
rulings…
5. Exercises such other
powers…
6. Represents the Monetary
Board and BSP…
7. Signs contracts…
Advocacies of the BSP
The BSP has advocated
projects on poverty
alleviation, anti-money
laundering, and public
financial literacy.
International Financial Bodies
And Foreign Aid
Efforts to better economies
of nations are also made by
international financial bodies,
which put a great deal into
helping, particularly on the
development side through
foreign aid.
Some of these international
financial bodies are the
following:
• World Bank- an international
institution that provides
financial aid and technical
assistance to developing
countries all over the world.
• International Monetary Fund
-this is actually a specialized
agency of the UN, the objective
of which is to promote
international monetary
cooperation and the growth of
world trade, and coordinate
multilateral payment among
member states.
• Foreign Loan Providers
- these are countries
which provide development
loans or credits to less
developed countries or LCDs.
Among the criticisms of
foreign aid are the following:

1. Too much dependency

2. Too much intrusion
3. Too much bureaucracy
4. Too much corruption