MONETARY AND BANKING POLICY:

ADVANTAGES AND ITS LIMITATIONS

Monetary policy is the government's policy of adjusting the stock money in order
to limit inflation, stimulate economic growth, and promote the actual aim of the national
economy. It is concerned with the control of interest rates and the total amount of
money in circulation, which is normally handled by central banks.

Monetary policy objectives are claimed to include preserving exchange rate

equilibrium, managing unemployment issues, and, most crucially, stabilizing the
economy. The Bangko Sentral ng Pilipinas is the Philippine central bank in charge of
monetary policy. The government does this to control inflation and stable the currency.
The basic goal of the BSP's monetary policy is to foster low and stable inflation, which is
favorable to balanced and long-term economic growth. Furthermore, monetary policy is
seen as one of the two methods in which the government may impact the economy. In
general, it is the process through which the central bank or government manages the
supply and availability of money, the cost of money, and the interest rate.

Using monetary policy has various advantages. It is a method of efficiently

controlling economic inflation. From the outside, inflation is frequently regarded as a
negative since it raises the prices of goods and services. A modest bit of it is actually
beneficial to a rising economy since it drives investment. This incident may also allow
employees to demand more pay for the services they supply. Investment becomes
more expensive when monetary policy raises the target interest rate. As a result of this
reaction, economic growth has slowed slightly, allowing the central bank to moderate
inflation levels.

It is a policy that is quite simple to apply. When central banks detect a problem
with monetary policy, they have the ability to intervene rapidly. Their arsenal is brimming
with possibilities that can sometimes be utilized at the drop of a hat. Even if the central
banks just provide a signal that monetary policy action will be taken, the stock market
will react as if the moves were executed. Although there may be some lag time in
seeing results in this procedure, you will still observe positive movement practically
instantly.

Central banks regulate the money supply and interest rates through monetary
policy. To revive a sagging economy, the central bank will lower interest rates, making
borrowing less expensive while expanding the money supply. If the economy grows too
quickly, the central bank can tighten monetary policy by raising interest rates and
withdrawing money from circulation.