Inflation and Monetary Policy PDF

FINMAN 4: MONETARY AND CENTRAL BANKING MONETARY POLICY EJ ABITONG  What do you call this? 2010 2012 2015 2023 95 PESOS 99 PESOS 117 PESOS 124 PESOS INFLATION  INFLATION Inflation refers to a broad rise in the prices of goods and services acr...

FINMAN 4: MONETARY AND CENTRAL BANKING MONETARY POLICY EJ ABITONG  What do you call this? 2010 2012 2015 2023 95 PESOS 99 PESOS 117 PESOS 124 PESOS INFLATION  INFLATION Inflation refers to a broad rise in the prices of goods and services across the economy over time, eroding purchasing power for both consumers and businesses. In other words, your pesos will not go as far today as it did yesterday. 2010 2012 2015 2023 95 PESOS 99 PESOS 117 PESOS 124 PESOS  RELATED BSP MANDATE 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. Ways of the Government to control the Price Stability Monetary Policy Fiscal Policy MONETARY POLICY The measures or actions taken by the central bank to influence the general price level and the level of liquidity 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, for the main objective of stabilizing the price level.  2 TYPES MONETARY POLICY EXPANSIONARY MONETARY POLICY - monetary policy setting that intends to increase the level of liquidity/money supply in the economy and which could also result in a relatively higher inflation path for the economy. CONTRACTIONARY MONETARY POLICY - monetary policy setting that intends to decrease the level of liquidity/money supply in the economy and which could also result in a relatively lower inflation path for the economy  MONETARY POLICY Reverse repurchase facility Moral Suation Open Market Operations (OMO) Standing liquidity facilities Rediscounting Reserve requirements MONETARY POLICY Reverse repurchase facility A reverse repurchase facility or reverse repo, is the sale of securities with the agreement to repurchase them at a higher price at a specific future date. MONETARY POLICY Moral Suation The influence which the central bank exercises to induce or convince banks to conduct operations in a manner that would contribute to the attainment of monetary goals but not necessarily support the profit-maximizing objectives of the banks. MONETARY POLICY Open Market Operations (OMO) The sale or purchase of government securities by the BSP to withdraw liquidity from or inject liquidity into the system.  MONETARY POLICY Statutory Liquidity Facilities The reserve requirement that banks are expected to keep before offering credit to customers.  MONETARY POLICY Rediscounting The BSP extends discounts, loans and advances to banking institutions in order to influence the volume of credit in the financial system. The rediscounting facility allows a financial institution to borrow money from the BSP using promissory notes and other loan papers of its borrowers as collateral.  MONETARY POLICY Reserve Requirement Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out, or where available through reserve-eligible government securities. Changes in reserve requirements have a significant effect on money supply in the banking system, making them a powerful means of liquidity management by the BSP.  FISCAL POLICY Fiscal policy refers to the use of government spending and tax policies to influence economic conditions. An expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth. A contractionary fiscal policy raises rates or cuts spending to prevent or reduce inflation. Example: The 2020 revenue estimate of P332. 3 billion from 'sin' products represents a 131.6 percent increase from the 2015 collection. By 2024, conservative DOF estimates show that the government would be able to collect about P480 billion. “This is a low-end projection,” THANK YOU