7/24/2019 BSP Interview

http://slidepdf.com/reader/full/bsp-interview 1/4

-,-

Q&A

FOR

MIRIAM

COTLEGE

STUDENTS

OD Conference

Room,4

September

2015,9:00

a.m.

1. As an

institution,

how do

you

contribute

to the

development

of

the

capital

market?

o

As

the

agency

mandated

to

supervise

the

financial system,

including

banks

and

non-banks

with

quasi-banking

functions,

the

role of the

BSP

is

to

maintain

financial

stability

in the

system.

That

is, allowing

participants

to

intermediate

funds,

offer

products

and

develop

services,

but also

ensuring

that

the attendant

risks are

well-addressed

and

the

system as

the

whole

will

function

well.

o

The

rules

and

regulations

of

the

BSP as

contained

in the

Manual of

Regulations

basically

set the

code of

conduct

in

the

financial system,

i.e.

the

activities

and

standards

that

these

institutions

can

do

in intermediating

funds

in

the

economy.

o

The

BSP

also closely

works

with

the

financial industry and

other

government

agencies

in

setting

the

agenda

for capital

market development,

through

various

forums such

as

the

Capital

Market

Development

Council

and the

BSP

Policy Committees.

This serves

as an avenue

for

participants

to

discuss

policy

directions

for

the

financial

market.

o

The BSP

also

supports

the

passage

of

laws

to

develop

capital

markets,

i.e.

Credit

lnformation

System

Act,

Personal

Equity

Retirement

Act,

Securities

Regulation Code,

etc.

2.

What

are

the factors

that

inftuence

inflation?

o

lnflation

can

be

influenced

both by

conditions

in

demand and

supply

in

the

economY.

Demand-side.

Higher aggregate

demand

due

to

increased

private

and

government

spending,

for instance,

can outpace

the

ability

of

the

economy

to

produce,

leading to

higher

prices

for

goods

and

services.

Supply-side.

Natural

disasters,

increases

in

oil

prices

or

higher

production

costs, can

lead to a

drop

in

the

aggregate

supply

in the economy,

and

result

in

the

same

increase in

prices.

3.

How do

you

(BSP)

keep track

of the

factors

that

influence

inflation?

o

The BSP

performs

a surveillance

and

research on

all

the aspects

of demand

and

supply

conditions

in

the

economy.

These

comprise

of

different

indices

and

statistics

that

the

BSP monitors

to

track

developments

that

may affect

prices

in

the

economy,

i.e. GDP

growth,

agricultural

production,

sales

figures,

financial

market movements

(stocks,

FX,

government

securities),

etc..

o

The

BSP uses

all these

data to

forecast

the

outlook

for

domestic inflation

within a

two-year

policy

horizon.

4. What tools

do the

BSP use to control

inflation?

o

The BSP controls

inflation

by

influencing, through

its

monetary

policy,

the

supply

of money

circulating

in

the

economy.

7/24/2019 BSP Interview

http://slidepdf.com/reader/full/bsp-interview 2/4

5.

The level

of

money

supply affects the overall demand for

goods

and

services

in

the

economy.

This,

together

with

the aggregate supply

of

goods

and services,

determines

the

level

of

prices.

o

The

primary monetary

policy

instrument or

tool of

the

BSP

is

the

overnight

reverse repurchase

(borrowing)

rate. To

contract

or expand

liquidity in

the

financial

system, the BSP can

also do the

following

actions:

o

increasing/decreasing

the

reserve

requirement;

o encouraging/discouraging

deposits

in

the special deposit

account

(SDA)

facility by

banks

and trust

entities of

BSP-supervised financial

institutions;

o

increasing/decreasing

the

rediscount rate

on

loans

extended by the

BSP

to

banking institutions

on

a

short-term basis against

eligible

collaterals

of

banks'

borrowers;

and

o outright salesfpurchases

of

the BSP's holdings

of

government

securities.

Do

you

strictly

follow

the monetary

policy

you

designed for,

say

the

year

2015,

or

do

you

apply

the

previous

monetary

policies you

used

the

previous years?

o

The BSP implements

monetary

policy

to achieve

the

inflation

target

set

by

the

National Government

(recommended

by

the

BSP).

o

Since 2002, the

BSP

adopted the

lnflation

Targeting Framework

and

it

continues

to be

in force.

(see

further answers in #6)

lnflation

targeting was mentioned in

our book. ls this

a

fundamental

approach in

conducting

the

monetary

poliry or

has

this

changed

as

well?

o

Yes, the BSP uses

inflation

targeting as an

approach to monetary

policy.

lnflation

targeting focuses mainly

on

achieving

price

stability as the ultimate

objective

of

monetary

policy.

With this

approach, the

central

bank

announces

an explicit

inflation

target and

promises

to

achieve it over

a

given

time

period.

The

target inflation

rate

is

set and announced

jointly

by

the BSP

and the

government

through

an

inter-agency

body.

Under

inflation

targeting

the central bank

compares actual headline inflation

against

inflation

forecasts.

The central

bank

uses

various monetary

policy

instruments

at

its disposal to

achieve

the inflation

target. ln

the Philippines,

this

involves mainly adjustments

in

the

BSP's

key policy

interest

rates.

The

BSP

uses other

instruments

such

as

rediscounting

and reserve requirement.

The

conduct

of

monetary

policy

is

always data-dependent.

lt is maintained

or

adjusted

based

on

the

conditions

of

the

economy, and

based on an informed

judgment

whether

the current

policy

rates

will maintain inflation

rate

within

the target.

How do

you

promote

a Iow

and stable

inflation

rate?

o

Same

answer

with

#3

6.

7.

7/24/2019 BSP Interview

http://slidepdf.com/reader/full/bsp-interview 3/4

8.

How

can

you

improve

your

communication

to the

public

so they

can

fully

understand

monetary

policies?

I

The

BSP

provides

regular reports

explaining

its

policy

decisions,

assessment

of

the inflation

environment,

and

inflation

outlook.

lf the central

bank fails

to

meet

the

inflation

target,

it is

required

to explain

to

the

public

why

the target

was

not

met

and come up

with

measures

on

how

to

steer inflation

towards

the

target level.

o

Moreover,

it

is

the

advocacy

of

the BSP

to

engage the

public

through

its

Economic

and

Financial

Learning

Program. lt

regularly

conducts

briefings,

information

campaigns and

activities

geared

towards

a

broad

set

of

audience

(e.g.

students,

entrepreneurs,

overseas workers

and their

families)

to

explain

the

role

of

the BSP in

the economy

and

also

impart

financial

literacy

and

education. A well-educated

and

engaged

citizenry

can

participate

more

meaningfully

in

economic

development,

as

well

as

avoid falling

victims

to

scams.

9.

What is

the

impact

of inflation

on

the

capital market?

o

lnflation

affects

the

real

return

on assets, hence

influences

the decision

of

market

participants

to invest.

This matters

both

to domestic

and

international

investors.

o

lf an

asset offers

5

percent

return

and inflation is

4

percent,

it

means

that

the

real

return

that

an

investor

will

obtain from holding

this

asset is

only

L

percent.

For

an investor, it

will

influence

his/her

decision whether

to invest

or

spend if

the

benefits

of

holding

an

asset

will

just

be

eroded

by

inflation.

o

Similarly,

an investor

may

demand higher

yields

or

returns

for

holding

an

assets, e.g.

bond, if he/she

expects

inflation

to

be high

in

the future.

This

will

influence

inflation

expectations in

the

capital

market

and generally push

up

asset

prices.

o

ln

an

international

viewpoint,

assuming

free

flow

of

capital and

a

similarly

priced

asset,

a

global

investor

will

choose to invest

his/her funds

in

a country

with

low

and

stable inflation,

to

be

able to

capture

higher real

returns.

10. What is

the

primary

objective

of

the

Bangko

Sentral ng

pilipinas?

o

The

BSP's

primary

objective is

to

maintain

price

stability

conducive

to a

balanced

and sustainable

economic

growth.

The

BSP

also

aims to

promote

and

preserve

monetary

stability

and

the

convertibility

of

the

national

currency.

o

Moreover,

the BSP

provides

policy

directions

in

the

areas

of

money,

banking

and

credit. lt

supervises

operations

of

banks and

exercises regulatory

powers

over

non-bank

financial institutions

with

quasi-banking

functions.

11. What

are

your

offices mandate,

rules,

and

regulations?

o

The

DER

is

the

primary

technical

arm of

the bank. lt

provides

technical

support

in

the

activities relative

to

the

formulation

of

monetary

policy

(Secretariat

of the

Advisory

Committee)

and conducts

relevant

research

on

important

policy

and

monetary

issues

in

the

global

and

domestic

economy.

7/24/2019 BSP Interview

http://slidepdf.com/reader/full/bsp-interview 4/4

12.

What

are

the

challenges

that the BSP

encounters

and how

do

you

deal with

them?

o

Changes

in

the

global

and

domestic

economic

environment

that can

affect

domestic

prices

are

among the

challenges faced

by

the BSP in

its

mandate

to

maintain

price

stability.

o

The

BSP

uses the

different monetary

instruments

to deal

with

these

changes

in

order

to

maintain

prices

stability.

13.

Some

people

say

that inflation

is

the

cruelest

tax,

why

do think

so?

o

For

a normal

Filipino,

high

inflation

can

erode

one's

purchasing

power

and

limit

the ability

to choose

a

wide range

of

goods

and

services.

o

For

example,

if

incomes

are constant,

higher

inflation

means

that

the

value

of

peso

can buy

fewer

goods.

ln

some instances,

individuals

either shift

to lower

quality

goods

or

forego

certain important

expenditures

(i.e.

food

for health)

to

cope

with

inflation.

o

This

results

in

reduced

welfare

and lower

quality

of

life

for individuals

who

do

not

have

capacity

to

bear

the

brunt

of

high

inflation.

14.

What

are

your

operational

guidelines

for inflation

targeting?

o

Since 2002,

the BSP

has been

observing

the following

operational

process

in

its implementation

of inflation

targeting.

lNrmrroN

TnncelNc

FnruewoRx

Government sets inflation

BsP

target 2

years

in

advance

'

Publishes highlights

61

n6g.

"

'ii

(in

consultation

with Bsp)

YES

meetin8s

on monetary

policy

l

discussions

:

'0"

**1T*... )

:ilil:'5i:x11:[]"i":.

j

I

inlatiorllorecast

-:*-*'-*-'*-"I---"*

Bsp

announces

lj

in,line

with

..$-dr t

inflation

targei

'

.

t"t8"t?..""

I

+

) E

-":::::":*::*--,

.orr".r"r',jln",rr

\g

i

)

conditions

.

Adjust

poticy

interest

ratii

]i

.

Forecasts

inflation

,,

.

U;;;*;;;;;

i

.

1e_li_b_e.rateso,:th:

rr'

il;;;r;"*'

monetary

policy

stancg/

tl*;t-,*...-*.f'

15.

How

do

the BSP

maintain

the

transparency

of

its

monetary

policy

to

the

public?

o

Same answers

with #

9

o

The

BSP

is

also championing

the

engagement

of stakeholders,

by regularly

soliciting

their feedback

on

the

services

rendered

by the

bank

as

well as

setting

up regular

conferences

and dialogues for

the

public.