MONETARY POLICY

Financial Markets
What is Monetary Policy?
Monetary policy is a set of
tools used by a nation’s
central bank to control the
overall money supply and
promote economic growth.
 Types of Monetary Policy

Expansionary Contractionary
Lowers interest rates and Raises interest rates and
stimulates borrowing. Also reduces borrowing in the
called as loose monetary economy. Also called as tight
policy. monetary policy.
 Objectives of Monetary Policy

Inflation Exchange Rates

Inflation Money Supply Money Supply Domestic

Currency

Unemployment

Unemployment Money Supply

Tools of Monetary Policy

Open Market Operations

Interest Rates

Reserve Requirements
How do interest rates
affect employment?
What is the importance of
monetary policy?

Central banks use monetary

policy to manage economic
fluctuations and achieve price
stability.
How does a central bank go
about changing monetary
policy?
BANKO SENTRAL NG
PILIPINAS
BSP’s main responsibility is to
formulate and implement policy in
the areas of money, banking, and
credit with the primary objective of
preserving price stability.
 INFLATION
TARGETING
Used by the BSP as a
foundation in
implementing the
monetary policy.
 KEY POLICY
RATE
It refers to the interest of BSP’s
borrowings from banks in
order to maintain price
stability.
 The Bottom Line

Monetary policy employs tools used by central

bankers to keep a nation’s economy stable while
limiting inflation and unemployment.

A nation’s monetary policy is often coordinated with

its fiscal policy.
 Fiscal Policy
It refers to the use of
government spending and tax
policies to influence economic
conditions.
MONETARY POLICY VS. FISCAL
POLICY
Monetary policy is the domain of a central bank and
refers to actions taken to increase or decrease liquidity
through the nation’s money supply.

Fiscal policy involves spurring or slowing economic

activity using taxes and government spending.