1. Part 1:
Christine A. Cayanan
Reporter
Part 2:
Jeremy Reyes
Reporter

2.  Government and Business
11.1 Introduction
11.2 An Overview
11.3 Levels of Analysis
11.4 Privatization policy

3. Role of Philippine Government
Please watch this video to know more about the plans of our Philippine Government to our economy

4. 2 ECONOMIC POLICY
 Fiscal Policy  Monetary Policy

13. BSP 7 MINUTES VIDEO

14. MONETARY POLICIES
 measures or actions taken by the central bank to
regulate money supply in the economy
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.BSP
specifically adopted a low and stable inflation rate as
the ultimate target of monetary policy.

15.  The reserve repurchase (RRP) or
borrowing rate is the primary monetary
policy instrument of the BSP. Other
monetary policy instruments include:
(a) increasing/decreasing the reserve
requirement;
(b) encouraging/discouraging deposits in
the special deposit account (SDA) facility
by banks and trust entities of BSP-supervised
financial institutions;
(c) adjusting the rediscount rate on loans
extended to banking institutions on a
short-term basis against eligible
collateral of banks' borrowers; and
(d) outright sales/purchases of the BSP's
holding of government securities.

16. Expansionary 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.

17. Contractionary Monetary Policy
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.

18. INFLATION TARGETING
- Adopted by BSP on January 2002
- Inflation target serves as a nominal anchor, aimed at
coordinating inflationary expectations
- Entails the announcement of an explicit nominal inflation
target which the central bank commits to achieve over a given
period of time
- Inflation target is set by the government and the BSP

19.  The government’s inflation target is defined in terms of the
average year-on-year change in the consumer price index
(CPI) over the calendar year.
 The inflation targets have been set at 4.5 percent with a
tolerance interval of + 1.0 percentage point for 2010 and 4.0
percent with a tolerance interval of + 1.0 percentage point
for 2011.

20. Inflation Report
The Inflation Report is published quarterly as
part of the BSP's transparency mechanism
under inflation targeting and to convey to the
public the overall thinking and analysis
behind the BSP's decision on monetary
policy.

22. Open Letter to the President
To ensure accountability in cases where the BSP fails to
achieve the inflation target, the BSP Governor issues an
Open Letter to the President outlining the reasons why
actual inflation did not fall within the target, along with the
steps that will be taken to bring inflation towards the target.

23.  OPEN MARKET OPERATIONS
- Transactions involve the sale or purchase of
securities by the BSP to withdraw liquidity from or
inject liquidity into the system
- Key component of monetary policy implementation
consist of repurchase and reverse repurchase
transactions, outright transactions, and foreign
exchange swaps.

24. A.1 Repurchase (RP) and Reverse Repurchase
(RRP)
- transactions are carried out through the repurchase (RP)
facility and the reverse repurchase (RRP) facility of the BSP.
In a repurchase or repo transaction, the BSP buys government
securities from a bank with a commitment to sell it back at a
specified future date at a predetermined rate. The BSP’s payment
to the bank increases the latter’s reserve balances and has an
expansionary effect on liquidity.

25. A.2 In a reverse repo, the BSP acts as
the :
-seller of government securities and the bank’s
payment has a contractionary effect on liquidity.

26.  A.3 RP and RRP transactions
-have maturities ranging from overnight as well as two
weeks to one month. The interest rates for the overnight
RRP and RP facilities signal the monetary policy stance
and serve as the BSP’s primary monetary policy
instruments.

27. B. Outright transactions
Outright transactions
-refer to the direct purchase/sale by the BSP of its
holdings of government securities from/to banking
institutions.

28. The transaction thus increases the buyer’s holdings of
central bank reserves and expands the money supply.
Conversely, when the BSP sells securities, the buyer’s
payment (made by direct debit against his Demand
Deposit Account with the BSP) causes the money supply
to contract.

29. Foreign exchange swaps
Foreign exchange swaps
-refer to transactions involving the actual exchange of
two currencies (principal amount only) on a specific date
at a rate agreed on the deal date (the first leg), and a
reverse exchange of the same two currencies at a date
further in the future (the second leg) at a rate (different
from the rate applied to the first leg) agreed on deal date.

30.  Acceptance of fixed-term deposits
The BSP also accepts deposits from banks. The
Special Deposit Accounts (SDA) facility consists of
fixed-term deposits by banks and by trust entities of
banks and non-bank financial institutions with the
BSP. It was introduced in November 1998 to enable
the BSP to expand its toolkit in liquidity
management.

31. In April 2007, the BSP expanded access to the SDA facility
by allowing trust entities to deposit in the SDA facility in
order to better manage liquidity in the face of strong foreign
exchange inflows.

32. Standing Facilities
The BSP extends discounts, loans and advances to banking institutions
in order to influence the volume of credit in the financial system.
Rediscounting is a standing credit facility provided by the BSP to help
banks meet temporary liquidity needs by refinancing the loans they
extend to their clients. 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.

33. There are two types of rediscounting facilities available to
qualified banks: the peso rediscounting facility and the
Exporters’ Dollar and Yen Rediscount Facility (EDYRF)
which was introduced in 1995.

34. Reserve Requirements
• Reserve requirements
-refer to the percentage of bank deposits and deposit
substitute liabilities that banks must keep on hand or in
deposits with the BSP and therefore may not lend.
Changes in reserve requirements have a significant
effect on money supply in the banking system, making
them a powerful means of liquidity management.

35. Reserve requirements apply to peso demand, savings, time
deposit and deposit substitutes (including long-term non-negotiable
tax-exempt certificates of time deposit or
LTNCTDs) of universal banks (UBs) and commercial banks
(KBs) and may be kept in the form of cash in vault, deposits
with the BSP and government securities.

36. MONETARY POLICY DECISIONS
28 January, 11 March, 22 April, 3 June, 26 August, 18 November
The Monetary Board decided to keep the BSP’s key policy interest
rates steady at 4 percent for the overnight borrowing or reverse
repurchase (RRP) facility and 6 percent for the overnight lending or
repurchase (RP) facility. The interest rates on term RRPs, RPs, and
special deposit accounts (SDAs) were also left unchanged.

37.  MORAL SUASION
BSP uses moral suasion to influence the behaviour of
the banking system.
BSP does this by holding frequent and regular dialogues
with bankers and other financial market players in order
to inform them of the policy actions of BSP and the
reason for these actions as well as influence them to
respond positively to these policy directions.

38.  Privatization is a government policy to transfer the
assets, agencies, and function of government into
the hands and control of the private sector. This is
as the sale of the assets such as real estate,
infrastructures, facilities, and other resources
including the take over of the functions of the
privatized instrumentalities.

40. Thank you!!!
Next Speaker
Mr. Jeremy Reyes