Danielle Kate Roan Ugay Monetary Policy

BSBA FM 2 Task 7 ESSAY

The main policy interest rate was increased by the BSP to 3.75%. The BSP decided to
increase the key policy rate by 50 basis points (bps) to 3.75% as of August 19, 2022, effective as
of August 18, 2022. This additional step aims to stabilize inflation expectations and prevent a
violation of the inflation target band in 2023.

I lean toward thinking that banks are usually free to choose the rates they will pay on
deposits and charge on loans, but they must take the competition, market levels for various
interest rates, and Fed policies into consideration. So, buying bonds with various maturities or
hedging fixed-income assets with interest rate swaps, options, or other interest rate derivatives
can decrease interest rate risk.

While taking out a loan might help you start and manage your business, remember that
paying back the loan's interest is also a cost of doing business that can reduce your earnings
and possibly create uncertainty. You may eventually establish a sound financial foundation and
manage a successful, debt-free business. A general increase in prices over time diminishes
customers' buying power since a constant quantity of money will eventually allow for less
spending. Whether inflation is running at 2% or 4%, consumers still lose buying power; they
simply do it twice as quickly at the higher rate.

My research has shown that internal factors, such as credit risk, capital availability,
operational efficiency, and liquidity, are expected to have an impact on bank lending. NPL, CAR,
OEOI, and LAR, as independent variables, each stand in for one of these four elements.