Bangko Sentral ng Pilipinas (BSP): Central Banking as the Controller of Price Stability

The Bangko Sentral ng Pilipinas (BSP), the Philippines' central bank is responsible for maintaining low and stable inflation and providing proactive leadership to ensure a strong financial system for the balance and sustainable growth of the Philippine economy. The economy is constantly evolving. It grows and responds to changes and innovations. The BSP provides a solid anchor for the economy while meeting the challenges of the times. The Bank prioritizes the stability and well-being of the economy but it is also dynamic. The work of the BSP centers on the 3 main areas or pillars. The 3 pillars of central banking are:

1. Price Stability
2. Financial Stability
3. Efficient Payments and Settlements System

Let us take a closer look at the first pillar of the central banking which is "Price Stability".

Price stability refers to the condition of low and stable inflation. By keeping inflation low, the BSP helps ensure strong and sustainable economic growth and better living standards. With price stability, prices of goods do not rise too quickly and people have a degree of certainty when deciding how to spend, save or invest their money.

Monetary policy refers to the measures or actions taken by the BSP to help keep inflation low and stable. The BSP conducts monetary policy using an approach called inflation targeting. In this approach, the BSP promises to keep average inflation close to pre-announce target. If for example, prices are rising more rapidly than the desired inflation rate. Because of the very strong demand for goods and services relative to supply, then the BSP will take action to bring down inflation to the target level by tightening monetary policy.

On the other hand, if forecasted inflation below the target, and then there's a weak demand for goods and services, then the BSP will ease monetary policy. The BSP has several means or instruments to carry out its monetary policy. To tighten monetary policy, the BSP can raise its policy interest rates pumping market interest rates to follow suit. It can also sell government securities as part of its open market operations to reduce the amount of money in the the financial system. Or it can raise reserve requirements imposed on banks.

The BSP can also accept fixed-term deposit from banks and non-banks financial institutions. To ease monetary policy, the BSP does the opposite. For example, it can reduce policy rates, buy government securities or bring down the reserve requirements. The BSP also ensures adequate liquidity on the banking system with loans to banks through the rediscounting facility.

This, then is the first pillar of central banking - Price Stability.

The first pillar of central banking or Price Stability ensures that inflation stays low and stable so that the economy grows and remains solid and strong.
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