Bangko Sentral ng Pilipinas (BSP)

established on July 3 1993 pursuant to the provisions of the 1987

Philippine Constitution and the New Central Bank Act of 1993.

took over from the Central Bank of the Philippines, which was
established on January 3, 1949, as the countrys central monetary
authority.
BSP enjoys fiscal and administrative autonomy from the National
Government in the pursuit of its mandated responsibilities.
Vision
The BSP aims to be a world-class monetary authority and a catalyst
for a globally competitive economy and financial system that delivers a
high quality life for all Filipinos.
Mission
BSP is committed to promote and maintain price stability and provide
proactive leadership in bringing about a strong financial system
conducive to a balanced and sustainable growth of the economy.
Towards this end, it shall conduct sound monetary policy and effective
supervision over financial institutions under its jurisdiction.
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Overview of Functions and Operations

Objectives
The BSPs 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.
Responsibilities
The BSP provides policy directions in the areas of money, banking and credit.
It supervises operations of banks and exercises regulatory powers over
Non-bank financial institutions with quasi-banking functions.

Management of foreign currency reserves

The BSP seeks to maintain sufficient international reserves to meet
any foreseeable net demands for foreign currencies in order to
preserve the international stability and convertibility of the Philippine
peso.
Determination of exchange rate policy
The BSP determines the exchange rate policy of the Philippines.
Currently, the BSP adheres to a market-oriented foreign exchange
rate policy such that the role of BSP is principally to ensure orderly
conditions in the market.
Other activities
The BSP functions as the banker, financial advisor and official
depository of the Government, its political subdivisions and
instrumentalities and government-owned and controlled corporations.
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Monetary Policy
The primary objective of BSPs monetary policy is to promote a low and
stable inflation conducive to a balanced and sustainable economic growth.
The adoption of inflation targeting framework for monetary policy in January
2002 is aimed at achieving this objective.
Inflation targeting is focused mainly on achieving a low and stable inflation,
supportive of the economys growth objective. This approach entails the
announcement of explicit inflation target the BSP promises to achieve over
a given time period.
Monetary policy instruments:
a. Open Market Operations
b, Increasing/decreasing reserve requirements
c. Encouraging/discouraging deposits in the Special Deposit Account
(SDA)
d. Adjusting the rediscount rate on loans extended to banking institutions
on a short-term basis against eligible collateral of banks borrowers
e. Outright sales/purchases of BSPs holding of government securities.
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Open Market Operations

a.Repurchase and Reverse Repurchase (Repo/Reverse Repo)
Repurchase BSP buys government securities (GS) from a bank with a
commitment to sell it back at a specified future date at a predetermined rate.
Reverse Repurchase - BSP acts the seller of GS
b.Outright transactions
Refer to the direct purchase/sale by the BSP of its holdings of GS
from/to banking institutions.
The parties do not commit to reverse the transaction in the future.
Government Securities - unconditional debt obligation of RP. Issued
by the Republic through the Bureau of Treasury

Treasury bills - 91. 182, 364 days

Treasury notes - 2 to 7 yrs.
Treasury bonds - 10, 20, 25 years
Acceptance of Fixed-term deposits (SDA)
Special Deposit Accounts (SDA)
BSP also accepts deposits from banks and trust entities.
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Rediscounting
BSP extends discounts, loans and advances to banking institutions in order
to influence the volume of credit in the financial system.
Rediscounting facility allows a financial institution to borrow money from the
BSP using promisory notes and other loan papers of its borrowers as
collateral.

Reserve Requirement
Refer to the percentage of bank deposits and deposit substitute liabilities that
banks must set aside in deposits with the BSP which they cannot lend out.
Call Loans and Interbank Call Loan Market (IBCL)
Call money are amounts traded in the interbank call loan market that
correspond to the excess or deficiency of each bank in terms of reserves.
These can be overnight placements.
ICBL transactions among banks are done primarily to correct reserve
requirements.
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Money Supply
M1 Narrow Money consists of currency in
circulation and peso demand deposit
M2 or Broad Money consists of M1 plus peso
savings and time deposits
M3 or broad money liabilities consists of M2 plus
peso deposit substitutes, Such as PN and CP

M4 consists of M3 plus transferable and other

deposits in foreign currency
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Deposit Substitute
An alternative form of obtaining funds from the
public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments
for the borrowers own account, for the purpose of
relending or purchasing of receivables and other
obligations.
These instruments may include but not limited to
bankers acceptances, Promissory notes,
participations, certificates of assignment and
similar Instruments with recourse, and repurchase
agreements.
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