Xavier Alexen Roxas Aseron

Banking Atty. Romero

2014400153 October 13, 2015
1. Role of the BSP in terms of Monetary Policy
According to the Bangko Sentral ng Pilipinas website their primary objective in
terms of Monetary Policy is to is to promote a low and stable inflation conducive to a
balanced and sustainable economic growth.1 The adoption of inflation targeting
framework for monetary policy in January 2002 is aimed at achieving this objective.
What is Inflation Targeting Framework? Inflation Targeting is when the central bank
announces an explicit inflation target and promises to achieve it over a given time
period.2 First of all, what are Monetary Policies? Monetary policy is a set of measures or
actions implemented by the central bank to affect the supply of money and credit in the
economy. Monetary policy actions of the BSP are aimed at influencing the timing, cost
and availability of money and credit, as well as other financial factors, to stabilize the
price level of goods and services. Why then do we want to stabilize the price level of
goods and services? Studies based on the experience of many countries have shown
that price stability supports growth because it allows households and businesses
(including export enterprises) to plan ahead and arrive at better informed decisions
about their consumption, investment, savings and production needs. In the case of
export firms, price stability allows them to price their products competitively, reducing
the risks related to the rising cost of raw materials.
Price stability also promotes income equality by protecting the purchasing power
of the poor who often do not have assets (real or financial) that allow them to hedge
against inflation. the Bangko Sentral ng Pilipinas (BSP) is uniquely qualified to promote
price stability because it has the sole ability to influence the amount of money circulating
in the economy. By controlling the supply of money, the BSP is able to exert some
influence on the prices of goods and services.
In addition, as the Philippines central monetary authority, the BSP is tasked to
promote price stability conducive to balanced and sustainable economic growth. This is
mandated by law under the provisions of Republic Act No. 7653, also known as the New
Central Bank Act.3
2. Role of the BSP in international reserves
The BSP seeks to maintain 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. Official international reserves assets
allow a central bank to purchase the domestic currency, which is considered a liability
for the central bank. Thus, the quantity of foreign exchange reserves can change as a
central bank implements monetary policy.4
The BSPs purchases of foreign exchange reserves as a form of insurance
against and precaution from unexpected shortages of foreign exchange, in other words
the countrys international reserves are the first line of defense in times of extreme
stress in the foreign exchange market.5 BSPs role in international reserves is to
maintain and insure that we have enough foreign reserves to be able to pay off foreign
debts with other countries, especially since we have learned from the Great Financial
1 http://www.bsp.gov.ph/monetary/overview.asp
2 http://www.bsp.gov.ph/downloads/publications/2012/bs12_a2.pdf
3 http://www.bsp.gov.ph/downloads/Publications/FAQs/targeting.pdf
4 http://www.bsp.gov.ph/downloads/EcoNews/EN10-06.pdf
5 Ibid.

Crisis that economies of countries affect each other in a sense that if one country goes
down it may lead to the demise of our country especially if we have a lot of trade going
on with that said country.