​ MONETARY & FISCAL POLICY

Finals in ECON 122

​Name:​ ​Princess, Centinales ​ ​Time & Schedule:​ ​1:30-3:00PM

​Course & Section​: ​BSBA 2A ​ ​ (Tues. & Thurs.)

​ ​ASSIGNMENT

1. Enumerate and Explain the types of Monetary & Fiscal Policy include the
economic indicator of each type.

The primary objective of BSP’s monetary policy and fiscal policy is to promote a
low and stable inflation conducive to a balanced and sustainable economic growth.

● Open Market Operations

In Purchase transactions, the Bangko Sentral buys government securities with a
dedication to sell it back at a specified future date, and at a predetermined interest
rate. The BSP's payment increases reserve balances and expands the monetary
supply in the Philippines.

● 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. Reserve requirements are imposed on the ​peso liabilities of
universal/commercial banks (UBs/KBs)​, thrift banks (TBs)​, ​rural banks (RBs)
and ​cooperative banks (Coop Banks)​, and ​non-bank financial institutions with
quasi-banking functions (NBQBs).​ Reservable liabilities include ​demand​,
savings,​ ​time deposit ​and ​deposit substitutes (​including long-term non-negotiable
tax-exempt certificates of time deposit or LTNCTDs​). The existing reserve
requirement ratios vary across bank types and liabilities.
 ● ​The Inflation Target​
​The Development Budget and Coordination Committee (DBCC), an inter-agency
economic planning body together with the BSP sets the annual inflation targets. 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 BSP makes the
announcement of the inflation target two years in advance. ​In line with the inflation
targeting approach to the conduct of monetary policy, the Development
Budget Coordi​nation Committee (DBCC), during its meeting on 11 December
2019, decided to keep the current inflation target at 3.0 percent ± 1.0
percentage point for 2020 – 2022.​ Inflation targeting is an approach to monetary
policy that involves the use of a publicly announced inflation target set by the
Government, which the BSP commits to achieve over a two-year horizon. Promoting
price stability is the BSP's main priority, and the target serves as a guide for the
public's expectations about future inflation, allowing them to plan ahead with greater
certainty.

● Price Stability - Inflation Targeting

​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.
Specifically, 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. Through the facility, the BSP makes possible the timely delivery of credit
to all productive sectors of the economy. Moreover, rediscounting is one of the
monetary tools of the BSP to influence the volume of credit in the financial system.
The BSP's rediscount facilities have two categories namely, Peso Rediscount Facility
and Exporters Dollar and Yen Rediscount Facility, which are administered by the
Department of Loans and Credit (DLC). The BSP’s Rediscount Facility is governed
by Sections 281 and 282 of the ​Manual of Regulations for Banks (MORB)​. You may
also download the FAQ on Rediscounting ​here.
Lending Rates

Pursuant to ​Circular No. 1071​, dated 08 January 2020, following are the
guidelines in establishing the BSP rediscount rates for Peso, US Dollar and
Japanese Yen loans:
1. Peso Rediscount Rates
The Peso rediscount rate shall be the BSP overnight (O/N) lending rate
plus a spread depending on the term of the loan as may be determined by the
BSP. The spread between these two may change periodically to complement
changes in the BSP's monetary policy goals. Banks eligible to apply in the
BSP's Peso rediscounting window may avail of a 1-90 days and/or 91-80 days
term facility, subject to applicable rediscount rates.

2. US Dollar/Japanese Yen Rediscount Rates

The US Dollar/Japanese Yen rediscount rates shall be the 90-day London
Interbank Offered Rate (LIBOR) or in the absence of LIBOR, an applicable
benchmark rate, plus an appropriate spread depending on the term of the
loan as maybe determined by the BSP. The spread between these two rates
may also vary to reflect movements in the market interest rates and to
achieve monetary policy objectives. Banks eligible to apply in the BSP’s
foreign currency rediscounting window may avail of the 1-90 days, 91-180
days, and/or 181-360 days term facility, subject to applicable rediscount rates.

Discount rate
BSP Rediscounting Rates for October 2020 and Loan Availments as of
September 2020. (October 12, 2020)
​The ​Monetary Board (MB)​, in its meeting dated 24 September 2020, approved,
among others, the further extension of the temporary reduction of the term spread on
Peso, US Dollar (USD) and Japanese Yen (JPY) rediscounting loans until 31
January 2021 as part of the BSP’s measures to continuously provide the needed
liquidity to banks for purposes of maintaining price and financial stability as the
economy recovers from the effects of CoronaVirus Disease 2019 pandemic in the
Philippines. As such and in view of the MB’s decision on 01 October 2020 to
maintain the policy rates, the applicable BSP rediscount rate for loans under the
Peso Rediscount Facility remains at 2.75 percent, regardless of loan maturity (i.e.,
1-180 days), while rediscount rates for loans under the Exporters’ Dollar and Yen
Rediscount Facility (EDYRF) for the month of October 2020 have been set at
2.22038 percent for USD and 1.90083 percent for JPY, regardless of loan maturity
(i.e., 1-360 days).

2. Give at least 1 specific Example (here in Philippines not US) of each type. (A
total of 4 policies).

➔ ​Open Market Operations

Example:
​The total value of exports and imports of goods and services equals 76.1 percent
of GDP. The average applied tariff rate is 1.7 percent, and 285 non tariff measures
are in force. In a move to attract longer-term foreign investment, foreign ownership
ceilings in a number of sectors have been raised. The financial sector, which is
gradually modernizing, remains relatively stable and sound.

​OPEN MARKETS
Trade Freedom 81.6 ​ ^
Investment Freedom 60.0 ​ -
Financial Freedom 60.0 ​ -

➔ Reserve Requirement
Example:
Philippines’s Reserve Requirement Ratio: Commercial Banks: Local Currency
Deposits data was reported at 12.000 % in Nov 2020. This stayed constant from the
previous number of 12.000 % for Oct 2020. Philippines’s Reserve Requirement
Ratio: Commercial Banks: Local Currency Deposits data is updated monthly,
averaging 19.000 % from May 1986 to Nov 2020, with 415 observations. The data
reached an all-time high of 25.000 % in Dec 1992 and a record low of 12.000 % in
Nov 2020. Philippines’s Reserve Requirement Ratio: Commercial Banks: Local
Currency Deposits data remains active status in CEIC and is reported by Bangko
Sentral ng Pilipinas. The data is categorized under Global Database’s Philippines –
Table PH.KA007: Reserve Requirement Ratio.
 ➔ ​The Inflation Target​
Example:
​In line with the inflation targeting approach to the conduct of monetary policy,
the Development Budget Coordi​nation Committee (DBCC), during its meeting on 11
December 2019, decided to keep the current inflation target at 3.0 percent ± 1.0
percentage point for 2020 – 2022.​

➔ ​Price Stability - Inflation Targeting

​ ​ Rediscounting
Example:
Bangko Sentral to increase rediscounting budget
- ​Des Ferriols​ () - June 11, 2009 - 12:00am
MANILA, Philippines – ​The Bangko Sentral ng Pilipinas (BSP) ​said yesterday
it would increase its rediscounting budget if there is enough demand in the market.
BSP Deputy Governor Diwa Guinigundo told reporters that the central bank is not
ruling out the possibility of another increase in the rediscounting budget. The
rediscount facility of the BSP is a loan facility that banks could tap for their liquidity
requirements provided they have the collateral and meet the qualifications set by the
central bank.
 According to Guinigundo​, however, the BSP wants to ensure that the amount
released into the system would not cause an increase in money supply such that it
would create inflationary pressures. “We will have to ensure the resulting level is
consistent with our inflation targets,” Guinigundo said. The BSP last increased its
rediscounting budget in February from P 40 billion to P60 billion as part of its
monetary policy easing and it also allowed easier access to the facility by loosening
up some of the qualifying criteria. The BSP also capped the access of large
commercial banks to the rediscounting facility, allowing smaller banks better access
to limited rediscounting funds by preventing large banks from cornering the available
funds. The latest available data from the BSP indicated that over P40 billion of the
facility has already been used up, indicating that there might be a need to increase
the budget further. The BSP also liberalized the rediscount facility to allow easier
access by banks that need liquidity and also by preventing large commercial banks
from cornering the available funds. In a circular effective March 2, the BSP increased
the allowable non-performing loans (NPL) holdings of banks that want to access the
rediscount facility.

3. Enumerate Central Bank names for at least 20 countries.

​ Countries ​ ​Central Name

Afghanistan Da Afghanistan Bank

Bahrain Central Bank Of Bahrain

Chile Central Bank of Chile

Denmark Danmarks National Bank

Ecuador Central Bank of Ecuador

Finland Suomen Pankki-Finlands Bank

Greece Bank of Greece

Hungary Magyar Nemzeti Bank

Italy Banca d’Italia

Jamaica Bank Of Jamaica

Kuwait Central Bank Of Kuwait

Lebanon Banque Du Liban

Myanmar Central Bank Of Myanmar

North Korea Central Bank of the Democratic

People's Republic of Korea

Portugal Banco De Portugal

Saudi Arabia Saudi Arabian Monetary Agency

Taiwan Central Bank of the Republic of China (

Taiwan )

United Arab Emirates Central Bank of United Arab Emirates

Venezuela Central Bank Of Venezuela

Zimbabwe Reserve Bank Of Zimbabwe