Economic Strategy

Monetary Policy
Bangko Sentral ng Pilipinas

• An agency of the government responsible in

implementing policies pertaining to money supply

• Uses monetary policies to regulate money through

credit and banking system
– To attain monetary stability conducive to economic
development
• Regulates the magnitude and movement of
money through the banking and credit
system, which serves as a conduit of funds
from sources to users
 Objectives of Monetary Policy

• To maintain internal and external monetary

stability in the Philippines and to preserve the
international value of the peso and its
convertibility to other freely convertible
currencies
• To foster monetary, credit and exchange conditions
conducive to a balanced and sustainable growth of
the economy
Tools of Monetary Policy
• Required reserves
• Rediscounting
• Open market operations
• Selective credit control
• Moral suasion
Required Reserves
• Lending behavior of commercial banks can
be as low as 80%, and as high as 90%
• The BSP requires commercial banks to keep a
certain percentage of their deposits in reserve

– If the lending behavior is 80%, the required

reserves in 20%
Rediscounting
• BSP enjoys another prerogative from being
the bankers of banks
• Rediscounting prerogative

– Setting limit to the funds that commercial banks

can borrow and designate the rate on interest at
which it lends
• (normally) BSP lends money to commercial
banks on the basis of loan papers that the
banks have

• The BSP rediscounts the loan paper and the

rate of interest it charges is called the
rediscount rate
• The rediscount rate provides a signal to the
commercial banks on the trend of interest rates in
general
Open Market Operations
• The BSP, along with other commercial banks,
actively participate in the purchase and sale
of government securities in active money
market
• Conducted in the open money market, (thus) called
open market operations
Selective Credit Control
• Lets the BSP selects the kind of credit it will
give to clients

• Tries to priorities its lending activity either to

production or consumption
Moral Suasion
• Tries to test the persuasive ability of the
Chairman of the Monetary Board and the
Governor of the BSP
• The BSP may hold session with the commercial banks
and try to persuade or make suggestion to the heads
of commercial banks to redirect their efforts in
national development goals
Activity