1 MONETARY POLICY Michael Angelo S.

Sunga
 MONEY
Money as a medium of exchange began to assume a significant role in the
advent of the market economy marked by specialization, independence and trade.
Today, the distinct advantage of the
monetary system over the barter
system defines the role of money in
the economy. The introduction of
money in the system makes
exchange possible when it passes
from one hand to the other. Money
reserve as a vehicle for the free flow
of products to satisfy human wants
since it can be exchanged for any
product available in the market as a
common thing of value. In addition,
money is the pillar of the price
system and can, therefore, induce
economic activities.

CENTRAL BANK

The responsibility of Bangko

Sentral ng Pilipinas to administer the
monetary, banking, and credit system
of the republic as embodied in
section 2, Articles of the amended
Republic Act 2656. This
responsibility is exercised to achieve
monetary objectives in consonance
with the overall economic policies of
the government.
2 MONETARY Michael Angelo S. Sunga
POLICY
 The following are the objectives of the BSP:
1. To maintain internal and external monetary
stability in the Philippines; and to preserve
the international value of the peso and its
convertibility to other freely convertible
currencies; and
2. To foster monetary, credit, and exchange
condition conducive to a balanced
sustainable growth of the economy.
The central bank regulates the magnitude and
movement of money through the banking and
MONETARY POLICIES credit system.

The Central Bank used monetary policies to regulate money through the
credit and banking system in order to attain monetary stability conducive to
economic development. However, monetary authorities have to use instruments to
make policies workable and, therefore, realize
objectives. The use of these instruments
should be flexible enough to content with the
dynamic forces that they direct. However,
some instruments take some time to induce
economic forces and are, therefore, inflexible.
Changing their course in the middle of the
road due to unexpected turns of event may
only sow uncertainties and creates counter-
productive conditions. On the other hand,
some instruments can content with the short-
term fluctuations brought about by the variables of present structures, and,
therefore, serve as short-runs tools to fine-tune policy bands. As such, they readily
steer economic factors back to course.
Some books defined Monetary Policy, a programme of action undertaken
by the central banks and other regulatory bodies to control and regulate the money
supply to the public and a flow of credit, so as to ensure the stability in price and
trust in the currency by targeting the inflation rate and interest rate.
Monetary policy is referred to as being either expansionary policy or
contractionary policy.
 EXPANSIONARY MONETARY POLICY

The expansionary monetary policy is

AGGREGATE DEMAND– The
total demand for final goods
and services in an economy
at a given time.
adopted when the economy is in a recession and the
unemployment is the problem. The expansion policy
is undertaken with an aim to increase the aggregate
demand by cutting the interest rates and increasing
the supply of money in the economy. The money
supply can be increased by buying the government
bonds, lowering the interest rates and the reserve
ratio. By doing so, the consumers spending increases,
the private sector borrowings increases,
unemployment reduces and the overall economy
grows.

CONTRACTIONARY MONETARY POLICY

The contractionary monetary policy is

applied when the inflation is a problem and
economy needs to be slow down by curtailing the
supply of money. The inflation is characterized by
increased momoney supply and increased consumer
spending. Thus, the contractionary monetary policy
is adopted with an aim to decrease the money
supply and spendings in the economy. This is
primarily done by increasing the interest rates so
that the borrowing becomes expensive.

INFLATION- is the increase in the

prices and goods and services over
time.
 MONETARY POLICIES

The Central Bank used Monetary Policies

to regulate money through the credit and
banking system in order to attain
monetary stability conducive to economic
development. However, monetary
authorities have to use instruments to
make policies workable and, therefore,
realize objectives. The use of these
instruments should be flexible enough to
content with the dynamic forces that they
direct.

A. OPEN MARKET OPERATION

asury bills by the central bank (BSP) with a view to regulate the money in the economy.
ernment securities, e.i., Bills, and Bonds. On the other hand, the central bank sells the government bonds and securities if the m
 B. BANK RATE

The BANK RATE also called as a DISCOUNT RATE is the

rate at which the commercial bank rediscount their bills of
exchange from the central bank.
The bank rate is the standard rate at which the bank buys or
rediscounts the bills of exchange and other commercial papers
that can be purchased under this act. Only approved bills and
first-class bills of exchange can be produced for rediscounting.
The central bank rediscounts the commercial papers or bills of
exchange because it is the function of the central bank – it is the
lender of the last resort. The central bank charges a rate for
rediscounting the bills of exchange; this rate is traditionally
called as a BANK RATE and more appropriate name used today
is discount rate.

C. CASH RESERVE RATIO

rm of cash reserve with the central bank.

unt of reserve to be maintained depends on the bank’s experience regarding the cash demand by the depositors. If there had

6 MONETARY POLICY Michael Angelo S. Sunga

 D. MORAL SUASION

Moral suasion refers to a method adopted by the central

bank to persuade or convince the commercial banks to advance
credit in accordance with the directives of the central bank in
the economic interest of the country. Simply, the process in
which the central bank requests or persuade the commercial
banks to comply with the general monetary policy of the central
bank is called moral suasion.
Moral suasion is applied in addition to the quantitative
and other selected methods, especially in the situations where
these methods prove to be less effective. The central bank relies
heavily on this method where there are a large number of
commercial banks, with a view to accomplishing the objectives.
Also, the central bank can request or convince the commercial
banks to not to advance additional credit to the public or
finance the non-priority industrial sector.

SUMMARY OF QUIZZES TOTAL

Sham yu 5
Jhomari Yumul 10
Jaycee joy Bartolome 10
Euclid Naboye 10
Daniel Haboc 8
Raz Huerto 10
Jory ann Santos 10
Claire stephanie capara 9
Noel pepito 10

Allan ray santos 10

kathlyn joy vivero 8

7 MONETARY Michael Angelo S. Sunga

POLICY
QUIZ