bsp Flashcards
Mission Statement
- Price stability to safeguard the purchasing power of the peso.
- Financial system stability, ensuring a sound and resilient financial sector.
- Effective supervision and regulation of the financial system, supporting a safe, sound, and inclusive financial environment.
- Efficient and inclusive payment systems to support the broader economy
Objectives of BSP
- Price Stability
- Financial System Stability
- Effective Payment and Settlement Systems
- Promotion of Financial Inclusion
- Efficient and Sound Management of Foreign Exchange Reserves
- Effective Regulation and Supervision of Financial Institutions
- Development of the Financial Market
Objective: Maintain a low and stable inflation rate to preserve the purchasing power of the peso.
How: By setting and implementing effective monetary policies, the BSP works to manage inflation and contribute to a stable economic environment.
to safeguard the purchasing power of the peso.
Price Stability
Objective: Promote the stability of the financial system, including banks and other financial institutions.
How: The BSP regulates and supervises financial institutions to ensure they operate in a sound, secure, and transparent manner, protecting the financial system from risks.
ensuring a sound and resilient financial sector
Financial System Stability
Objective: Ensure the efficiency, security, and inclusiveness of payment systems in the country.
How: By overseeing payment systems, the BSP fosters safe and efficient transfer of funds, which are essential for economic transactions.
Effective Payment and Settlement Systems
Objective: Expand access to financial services for underserved sectors of the population, especially those in rural areas or with limited resources.
How: The BSP encourages innovations in financial technology and implements policies that facilitate access to banking and financial services for all Filipinos.
Promotion of Financial Inclusion
Objective: Safeguard the country’s foreign exchange reserves to ensure external stability.
How: The BSP manages the country’s foreign exchange reserves, ensuring sufficient liquidity to address economic challenges and meet external obligations.
Efficient and Sound Management of Foreign Exchange Reserves
Objective: Safeguard the soundness of the banking system and financial institutions.
How: Through the formulation and enforcement of regulations, the BSP ensures that financial institutions operate with proper risk management and in line with legal and ethical standards.
Effective Regulation and Supervision of Financial Institutions
Objective: Support the development of a dynamic financial market that contributes to economic growth.
How: By ensuring sound regulatory frameworks, fostering innovation, and promoting the smooth operation of financial markets.
Development of the Financial Market
The Key Goals of Liquidity Management
- Price Stability
- Financial System Stability
- Smooth Functioning of the Economy
Key goals of liquidity management
By managing liquidity effectively, the BSP aims to control inflation and avoid excessive
inflationary pressures, thus maintaining price stability in the economy.
Price Stability
The Key Goals of Liquidity Management
Ensuring that financial institutions have enough liquidity to meet their
short-term obligations without resorting to excessive borrowing or experiencing financial distress.
Financial System Stability
The Key Goals of Liquidity Management
Ensuring that there is enough money in the system for consumers and businesses to make payments, invest, and trade, supporting overall economic activity.
Smooth Functioning of the Economy
Tools for Liquidity Management
- Open Market Operations (OMOs)
- Reserve Requirements
- Discount Window
- Repurchase Agreements (Repos)
- Standing Facilities
Tools for Liquidity Management
- These are the buying and selling of government securities by the BSP in the open market.
- **When liquidity is too high **(which could lead to inflation), the BSP sells securities to absorb excess funds from the system.
- When liquidity is too low (which could constrain economic growth), the BSP buys securities to inject money into the banking system.
Open Market Operations (OMOs)
Tools for Liquidity Management
- The BSP sets the reserve requirement ratio, which dictates the percentage of deposits that banks must hold as reserves.
- Increasing reserve requirements reduces the amount of money circulating in the economy, helping to curb excessive liquidity.
- Decreasing reserve requirements increases the amount of money available for lending and investment, boosting liquidity in the system
Reserve Requirements
Tools for Liquidity Management
- The BSP provides liquidity to banks facing temporary cash shortages through its discount window.
- This allows banks to borrow funds from the BSP at a specified interest rate (often referred to as the discount rate) to meet their short-term liquidity needs.
Discount Window
Tools for Liquidity Management
- Repos involve the sale of securities with an agreement to repurchase them at a later date.
- Repo transactions help manage short-term liquidity in the banking system, as banks can either borrow or lend through these agreements.
Repurchase Agreements (Repos)
Tools for Liquidity Management
- The BSP offers standing facilities such as the overnight lending facility (for banks in need of liquidity) and the overnight deposit facility (for banks with excess liquidity).
- These facilities help stabilize the interbank market by providing access to immediate funds or safe places for excess funds.
Standing Facilities
Role of Liquidity Management
- Controlling Inflation
- Supporting Growth
- Promoting Financial Stability
Role of Liquidity Management
By influencing the amount of money circulating in the economy, the BSP can prevent excessive inflation.
Controlling Inflation
Role of Liquidity Management
Ensuring that businesses and consumers have access to credit and cash flow to support economic activity and investments.
Supporting Growth
Role of Liquidity Management
Preventing sudden liquidity shortages that could lead to banking crises or economic instability
Promoting Financial Stability:
