MONETARY POLICY IN THE PHILIPPINES Lecture

MONETARY POLICY IN THE PHILIPPINES
Good afternoon, Class! Am I loud and clear? Can you pls react heart if
you can hear me.
Before we start with our lesson, let’s pray first to be led by Ms. Dizon.
Thank you, Ms. Dizon for leading the prayer.
Let me check your attendance. And I can see that you are all present.
Alright! Our lesson for today is all about Monetary Policy in the
Philippines.
Can you type the word MONETARY POLICY in the chat box for us to
be more familiarize with our topic.
QUESTION: Why is it important to know the Monetary Policy in our
country?
Anyone from the class? It seems na gustung gusto mag-volunteer ni
Ms. __________.
Can you give me
your idea about it?
Thank you, Ms…
Okay, it is important to know because Monetary Policy is a set of
actions to control a nation’s overall money supply and also to achieve
economic growth.
They employ strategies like revising our interest rates and also
changing the bank’s reserve requirements.
For example, policymakers manipulate money circulation for
increasing employment, GDP, price stability by using tools such as
interest rates, reserves, bonds, etc.
Since we have Monetary Policy or the set of actions and tools. We need
now the facilitator? Or kung sino ba ang gagawa ng process and
actions in order na maachieve natin ang goals which is as I have
mentioned earlier yung economic growth and stability natin.
Okay, do you have any idea? Who will implement this policy? Anyone?
Alright, it’s the Central Bank of the Philippines or the well-known BSP.
Then let’s go on the BSP’s Primary Objective which is can you pls. read
Ms…
We have also stated here the actions taken by the BSP. First, to
manage all supply and cost of money and credit.
1. How Central Bank control the supply of money? To ensure our
economy remains healthy, BSP regulates the amount of money in
circulation. Para din hindi tayo magkaroon ng overproduction of
money.
2. To influence overall demand for goods and services
3. To attain price stability – BSP performs a balancing act to
maintain stability.
We have here the figure to better understand you the process. From
Unstable Economy, the Central Bank implement policies, they inject
Monetary Policy to control the money supply in order for us to attain
Economic Stability and Growth.
Monetary Policy is commonly classified as either contractionary and
expansionary.
CONTRACTIONARY
A contractionary policy increases interest rates and limits the
outstanding money supply to slow growth and decrease inflation,
where the prices of goods and services in an economy rise and reduce
the purchasing power of money.
 It aims to reduce the amount of money in circulation in order to
reduce inflation.
 This type of policy involves raising interest rates, which reduces the
availability of credit and slows spending and investment.
 However, this form of policy also has negative consequences, like
increasing unemployment and the risk of recession.
EXPANSIONARY
During times of slowdown or a recession, an expansionary policy
grows economic activity. By lowering interest rates, saving becomes
less attractive, and consumer spending and borrowing increase.
 Expansionary monetary policy is used when there is an economic
slowdown or recession that needs to be countered with low-interest
rates and increased government spending.
 It does not typically cause high levels of inflation because it’s often
accompanied by lower levels of demand from consumers,
companies, and investors, as well as slower productivity growth.
 It entails increasing the amount of money in circulation in order to
stimulate investment and, as a result, reduce unemployment and
achieve economic growth. Its use usually results in inflation.
 The central bank can use expansionary monetary policies when
there is a recession.
 Expansionary monetary policy involves lowering interest rates to
stimulate economic growth and increase the money supply.
What is the central bank Act of 1948?

During year 1940s to 1970s, we have The Central Bank Act approved
on June 15, 1948: An Act establishing the Central Bank of the
Philippines, defining its powers in the administration of the Monetary
and Banking System, amending the pertinent provisions of the
Administrative Code with respect to the currency and the Bureau of
Banking, and for other purposes.
On November 29, 1972, President Ferdinand Marcos' Presidential
Decree No. 72 amended Republic Act No. 265, emphasizing the
maintenance of domestic and international monetary stability as the
primary objective of the Central Bank.
265 was amended by Presidential Decree No. 72 to make the CBP
more responsive to changing economic conditions. PD No. 72
emphasized the maintenance of domestic and international monetary
stability as the primary objective of the CBP.
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
MONETARY POLICY
MONETARY AGGREGATE TARGETING
Studying monetary aggregates can generate substantial information
on the financial stability and overall health of a country. For example,
monetary aggregates that grow too rapidly may cause fear of a high
rate of inflation.
If there is a greater amount of money in circulation than what is

needed to pay for the same amount of goods and services, prices are
likely to rise. If a high rate of inflation occurs, central banking groups
may be forced to raise interest rates or stop the growth in the money
supply.
MODIFIED MONETARY AGGREGATE TARGETING

INFLATION TARGETING
What Is Inflation Targeting?
Inflation targeting is a central banking policy that revolves around
adjusting monetary policy to achieve a specified annual rate
of inflation. This is known as the target rate, which is normally set at
around 2% to 3%.
The principle of inflation targeting is based on the belief that long-

term economic growth is best achieved by maintaining price stability,
and price stability is achieved by controlling inflation.
 Inflation targeting is a central bank strategy of specifying an

inflation rate as a goal and adjusting monetary policy to achieve
that rate.
 Inflation targeting primarily focuses on maintaining price
stability, but its proponents also believe that it supports
economic growth and stability.
 Inflation targeting can be contrasted to other possible policy
goals of central banking, including the targeting of exchange
rates, unemployment, or national income.

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MONETARY POLICY IN THE PHILIPPINES Lecture

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MONETARY POLICY IN THE PHILIPPINES

What is the central bank Act of 1948?

If there is a greater amount of money in circulation than what is

MODIFIED MONETARY AGGREGATE TARGETING

The principle of inflation targeting is based on the belief that long-

 Inflation targeting is a central bank strategy of specifying an

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