Easy Monetary Policy?

According to Bangko Sentral ng Pilipinas (BSP), current monetary policy settings support the country’s growth without leading to price increases that could choke the local economy.

This followed the release of government statistics that showed inflation, or the average rate of price increases of key consumer products and services was below the BSP’s target range for 2013.

     Bangko Sentral ng Pilipinas Logo

 BSP Governor Amando M. Tetangco Jr.

“BSP will continue to monitor external developments, particularly any changes in monetary policies and assessments in the demand conditions by advanced economies in their jurisdictions,” BSP Governor Amando M. Tetangco Jr. said.

Signal by the US Federal Reserve on the possible winding down of its bond-buying program, which has been supporting the world’s largest economy, sent asset prices in emerging markets crashing.

  US Federal Reserve System Logo

In the Philippines, local share prices are pushed into the so-called “bear” territory, while the peso weakened to its lowest point in more than a year.  

Tetangco explained that they will monitor the impact of these factors on global and domestic investor sentiment and growth dynamics.

  PESO

According to the news above, monetary policy is known as a method that central bank uses to influence the economy by carrying money supply and interest rates. Easy monetary policy is a central bank policy designed to stimulate economic growth by lowering short term interest rates, making money less expensive to borrow, also known as accommodation monetary policy or loose credit.

Due to the recession, the BSP lowers the reserve ratio, which makes the money rises. This would gradually lower the interest rate and increase the investment spending. Thus, aggregate demand increases which eventually results real GDP to rise.

Reference:

1. http://business.inquirer.net/130729/bsp-seen-to-maintain-easy-monetary-policy

2. http://www.investorwords.com/1630/easy_monetary_policy.html

By Low Chia Yin 0315659