COLLEGE OF BUSINESS AND ACCOUNTANCY

MANUEL S. ENVERGA UNIVERSITY FOUNDATION - LUCENA CITY, PHILIPPINES

An Autonomous University
CHED CEB Res. 076-2009

FINANCIAL MARKETS
C061

Regina P. Basan September 6, 2021

Block 2- BSA- 3rd year Prof. Imelda D. Cabasco

1. What was the original name and why and when was it changed?

The administration that followed the transition government of President

Corazon C. Aquino saw the turning of another chapter in Philippine central banking. In
accordance with a provision in the 1987 Constitution, President Fidel V. Ramos signed
into law Republic Act No. 7653, the New Central Bank Act, on 14 June 1993. The
law provides for the establishment of an independent monetary authority to
be known as the Bangko Sentral ng Pilipinas, with the maintenance of price
stability explicitly stated as its primary objective. This objective was only
implied in the old Central Bank charter. The law also gives the Bangko Sentral fiscal
and administrative autonomy which the old Central Bank did not have. On 3 July 1993,
the New Central Bank Act took effect.

2. Discuss the main function/functions of Bangko Sentral. How does it

affect the Financial Market here in our Country.

The BSP's main responsibility is to formulate and implement policy in the

areas of money, banking and credit with the primary objective of preserving price stability.
Price stability refers to a condition of low and stable inflation. By keeping price stable, the
BSP helps ensure strong and sustainable economic growth and better living standards.The
primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced
and sustainable growth of the economy and employment. It shall also promote and maintain
monetary stability and the convertibility of the peso.The Bangko Sentral shall promote
financial stability and closely work with the National Government, including, but not limited to,
the Department of Finance, Securities and Exchange Commission, the Insurance
Commission, and the Philippine Deposit Insurance Corporation.
 It shall oversee the payment and settlement systems in the Philippines,
including critical financial market infrastructures, in order to promote sound and prudent
practices consistent with the maintenance of financial stability.
As to the question, how it affects the financial market, by keeping the
price stable, the BSP ensure strong and sustainable economic growth for
living standards. In the attainment of its objectives, it shall promote broad
and convenient access to high quality financial services and consider the
interest of the general public.
This would be an addition to the main functions of the BSP that was mentioned above. As
prescribed by the New Central Bank Act, the main functions of the Bangko Sentral are:
• Liquidity management, by formulating and implementing monetary policy
aimed at influencing money supply, consistent with its primary objective to
maintain price stability,
• Currency issue. The BSP has the exclusive power to issue the national currency.
All notes and coins issued by the BSP are fully guaranteed by the Government and
are considered legal tender for all private and public debts,
• Lender of last resort, by extending discounts, loans and advances to banking
institutions for liquidity purposes,
• Financial supervision, by supervising banks and exercising regulatory powers
over non-bank institutions performing quasi-banking functions,
• Management of foreign currency reserves, by maintaining sufficient
international reserves to meet any foreseeable net demands for foreign currencies
in order to preserve the international stability and convertibility of the Philippine
peso,
• Determination of exchange rate policy, by determining the exchange rate
policy of the Philippines. Currently, the BSP adheres to a market-oriented foreign
exchange rate policy,
• and Being the banker, financial advisor and official depository of the
Government, its political subdivisions and instrumentalities and GOCCs.
3. Who is the current Governor of Bangko Sentral

BENJAMIN E. DIOKNO, Ph.D.

Governor
Bangko Sentral ng Pilipinas

Dr. Diokno is the current Governor of the Bangko Sentral ng Pilipinas (BSP).
He is a Filipino economist serving as the governor of the Bangko Sentral ng
Pilipinas and ex officio chairman of the Anti-Money Laundering Council since 2019. He
also served as undersecretary for Budget Operations of the Department of Budget and
Management from 1986 to 1991 under President Corazon Aquino. Prior to his
appointment as BSP Governor, he served as Budget Secretary from 2016 to 2019. On his
third tour of duty at the Department of Budget and Management (DBM), he pursued an
expansionary fiscal policy to finance investments in human capital development and
public infrastructure. His policy expertise and research contribution extend to various
areas of public economics, such as the structure and scope of government, tax policies and
reforms, public expenditure management analysis, fiscal decentralization, national
budget and public debt among other topics. He has extensive experience in implementing
reforms at the public sector, having also served as Budget Undersecretary from 1986 to
1991 and Budget Secretary from 1998 to 2001.

4. Based on the article I just shared with you, what was the policy being
maintained by Bangko Sentral on lending activities...
“BSP’s last follow-through rate cut in November appears to be finally
helping lift lending somewhat with August bank lending expected to post a
modest gain on a year-on-year basis,” Mr. Mapa said in an e-mail. The National
Government’s targeted fiscal initiatives and health interventions will be crucial in
boosting domestic demand and strengthening the recovery.

Following the global financial crisis, central banks in advanced

economies eased monetary policy by reducing interest rates until short-term
rates came close to zero, which limited the option to cut policy rates further.
 With the danger of deflation rising, central banks undertook unconventional
monetary policies, including buying long-term bonds with the aim of further lowering
long term rates and loosening monetary conditions. Some central banks even took short-
term rates below zero. A key role of central banks is to conduct monetary policy to achieve
price stability (low and stable inflation) and to help manage economic fluctuations. The
policy frameworks within which central banks operate have been subject to major changes
over recent decades.
In response to the COVID-19 pandemic, central banks have taken
unprecedented policy actions to ease monetary policy across the globe, provide ample
liquidity to core funding markets, and maintain the flow of credit. To mitigate stress in
currency and local bond markets, many emerging market central banks used foreign
exchange interventions and deployed, for the first time, asset purchases programs.
“Looking ahead, the BSP will continue to prioritize monetary policy support in order to
ensure the continued momentum of economic recovery,” the central bank said in a
statement.

5. What was the cause of the continuous decline?

The decline in July is softer than the 2% contraction in June, and matched the
drop seen in December 2020. To recall, December saw bank lending fall for the first time
since September 2006. The softer decline in bank lending reflects the lag in the
effect of monetary policy. Policy rates are currently at a record low after the Monetary
Board cut policy rates by a total of 200 basis points in 2020.In July, lending for
production activities rose 0.8%, a turnaround from the 0.6% contraction in June. The
BSP attributed this to the higher borrowings for real estate activities (5.9%); information
and communication (14%); electricity, gas steam and air-conditioning supply (2.1%); and
transportation and storage (7%).

Bank Lending slipped for an eighth consecutive month in July, although at a

softer pace as borrowings for production activities increased amid looser quarantine
restrictions. Outstanding loan issued by big banks dipped 0.7% year on year to P9.137
trillion in July, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP)
released Tuesday evening. Bank lending rose by 0.5% on a seasonally adjusted basis
month on month, as July saw a further relaxation of restrictions in the capital region. On
the other hand, bank loans for other commercial activities dropped, including those for
wholesale and retail trade and repair of motor vehicles and motorcycles (-4.5 %) and
manufacturing (-2.6%).Retail loans contracted by 8.2% in July, although softer than the
8.7% fall in June. Consumer loan segments continued to decline, led by motor vehicle
loans (-15.4%), salary-based loans (-5.8%), and credit cards (-1.6After a two-week strict
lockdown was implemented in August, analysts are hopeful that credit growth will pick
up in the coming months.

In August, BSP Governor Benjamin E. Diokno said the central bank is not keen
on raising rates or cutting banks’ reserve requirement ratio (RRR) while the country is
still at the early stages of recover. In response to the COVID-19 pandemic, central banks
used an array of conventional and unconventional tools to ease monetary policy, support
liquidity in key financial markets and maintain the flow of credit. Central banks play a
crucial role in ensuring economic and financial stability.