Chapter 2 Flashcards
It is under the control of BSP and is completely discretionary
Monetary Policy
This is used by the government to be able to control inflation and stabilize currency
Monetary Policy
Two ways that the government can influenece the economy
monetary policy
fiscal policy
The BSP will lower interest rates and increase the money supply
recession
The BSP will raise interest rates and decrease the monet supply
Overheated expansion
commonly called as easy money
expansionary
commonly called as tight money
contractionary
a monetary policy setting that intends to increase the level of liquidity or money supply in the economy qnd which could result in a relatively higher inflation path for the economy
expansionary monetary policy
tends to encourage economic activity as more funds are made available for lending by banks
enpansionary
a monetary policy setting that intends to decrease the level of liquidity or money supply in the economy and which could also result in a relatively lower inflation lath for the economy
contractionary
tends to limit economic activity as less funds are made available for lending by banks
contractionary monetary policy
is focused mainly on achieving a low and stable inflation, supportive of the economys growth objective
inflation targeting
to increase or reduce liquidity in the financial system, the BSP uses
open market operations
accepts fixed-term deposits
offers standing facilities
requires vanking institution too hold reserves
are a key component of monetary policy implementation
open market operations
open market operations consists of
repurchase transactions
reverse repurchase transactions
outright transactions
foreign exchange swaps
the BSP buys government securities from a bank with a commitment to sell it back at a specified future date at a predetermined rate
repurchase or repo transaction
the BSP acts as the seller of government securities and the banks payment has a contractionary effect on liquidity
reverse repo
refer to the direct purchase or sale by the BSP of its holdings of government securities from or to banking institutions
outright transactions
refer to transactions involving the actual exchange of two currencies on a specific date at a rate agreed on tge deal date
foreign exchange swaps
consists of fixed-term deposits by banks and by trust entities of banks and non-bank financial institutions with the BSP
Special Deposit Accounts
is a standing credit facility provided by the BSP t help banks meet temporary liquidity needs by refinancing the loans they extend to their clients
Rediscounting
allows a financial institution to borrow money from the BSP using promissory notes and other loan papers of its borrowers as collateral
rediscounting facility
two types of rediscounting facilities
the peso rediscounting facility
the exporters dollar and yen rediscount facility
refer to the perventage of bank deposits and deposit substitute liabilities that banks must keep on hand or in deposits with the BSP and therefore may not lend
reserve requirements
required reserves consist of two forms
regular or statutory reserves
liquidity reserves
help to reduce bank intermediation costs since they are paid market based interest rates
liquidity reserves
8 recent developments and inflation outlook
domestic price conditions
inflation expectations
inflation outlook
demand conditions
supply side indicators
financial market developments
domestic liquidity and credit conditions
fiscal developments
external developments
the sum of the reserve money, reserve eligible government securities
base money
represents the average price for a given period of a standard basket of goods and services consumed by a typical filipino family
consumer price index
the rate of change in the weighted average prices of all goods and services in the cpi basket
headline inflation
the rate of change in the weighted average prices of goods and services typically purchased by consumers
inflation rate
an alternative measure of inflation that eliminates transitory effects on the cpi
core inflation
refers to the option given to bqnks in complying with the reserve requirement
liquidity reserves
the sale or purchase of government securities by the bsp to withdraw liquidity from or inject liquidity into the system
open market operations
the sum of savings and time deposits
quasi money
the policy interest rate at which the bsp lends to banks with government securities as collateral
repurchase rate
is a deposit facility with the bsp designed to facilitate the adoption of the change in the banks mkde of compliance with the liquidity reserve requiremenr
reserve deposit accounts
the sum of currency in circulation and reserves of banks which include cash in banks vault and reserve balances
reserve money
refers to the proportion of banks deposits and deposit substitute liabilities that banks are required to hold as reserves
reserve requirement
the policy interest rate at which the bsp borrows from banks with government securities as collateral
reverse repurchase
