MONETARY POLICY
ROGER V. IDOS, MBM,
Instructor
MONETARY ΡOLICY
 Measures or actions taken by the BSP to
regulate the supply of money in the
economy.
 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 purpose of stabilizing the
price level
If the BSP believes that money supply is in
excess of a desired level, then it can take
action to reduce the money supply. This is
referred to as Contractionary Monetary
Policy.
if based on the BSP’s assessment—the
liquidity situation is tight and there is a
need to increase money supply, it
implements an Expansionary Monetary
Policy.
MONETARY ΡOLICY
 Is any policy promulgated by the government which
affect money supply and interest rates. It aims t
economic growth, keep unemployment rates low and
control inflation.
 The
BSP implements monetary policy by influencing
interest rates and money supply.
OBJECTIVES OR GOALS OF MONETARY POLICY :
Full Employment
One of the objectives of monetary policy is attain full
employment. It is not only because unemployment
leads to wastage of potential output, but also
because of the loss of social standing and selfrespect. It also breeds poverty.
OBJECTIVES OR GOALS OF MONETARY POLICY :
 Price Stability
To stabilize the price level. Both , rising and falling
prices are bad as the bring unnecessary loss to some
and undue advantage to others. They are associated
with business cycles. price stability keeps the value of
money stable, eliminates cyclical fluctuations. Brings
economic stability, helps in reducing inequalities of
income and wealth, secures social justice and
promotes economic welfare
PRICE STABILITY
“An environment in which inflation is sufficiently low
that it is no longer consideration in the economic
decision of households and firms” – Alan Greenspan
(2015)
“Prices are stable when ordinary people stop talking
about inflation”- Alan Blinder (2017)
What is Price Stability
Price Stability
On average, prices neither increase or decrease
markedly
There is low and stable inflation
OBJECTIVES OR GOALS OF MONETARY POLICY
 Economic Growth
Monetary policy can be imposed to influence the
rapid economic growth. Economic growth is defined
as “the process whereby the real per capita income
of a country increases over a long period of time “it is
measured by the increase in the amount of goods
and services produced in a country. A growing
economy produces more goods and services in each
successive time period. Thus, growth occurs when an
economy’s thus, economic growth implies raising the
standard of living of the people and reducing
inequalities of income distribution.
OBJECTIVES OR GOALS OF MONETARY POLICY
 Balance of Payments
another objective of monetary policy since the 1950s
has been to maintain equilibrium in the balance of
payments. It is also recognized that deficit in the
balance of payments will retard the attainment of
other objectives. This is because a deficit in the
balance of payment leads to a sizeable outflow of
gold,
INTEREST RATE
The cost of borrowing money or the amount paid for lending
money expressed as a percentage of the principal.
Interest rate policy :

High interest rate in an underdeveloped country
acts as an incentive to higher savings develops
banking habits and speeds up the monetization of
the economy which are essential for capital
formation and economic growth.
 High
interest rate policy is anti inflationary in
nature, for it discourages borrowing and
investment for speculative purpose, and in
foreign currencies
INFLATION
refers to the rate of change in the average prices of
goods and services typically purchased by
consumers. If inflation is low and stable, then we
say that there is price stability. Inflation is typically
defined as the annual percentage change in the
Consumer Price Index.
CONSUMER PRICE INDEX (CPI)

The CPI represents the average price of a standard basket of
goods and services consumed by a typical Filipino family for a
given period. This standard basket contains hundreds of
consumption items (such as food products, clothing, water and
electricity) whose price movements are monitored to determine
the change in the CPI, or the level of inflation.
The National Statistics Office (NSO) calculates and announces
the monthly CPI and the rate of inflation based on a nationwide
monthly survey of prices for a given basket of commodities. The
NSO also determines the composition of the CPI basket through
surveys that are conducted periodically.