The BSP:

What does it do for you?

EFLO Online Learning Session
20 November 2021
 utline
What we’ll learn today

01 | The BSP’s Mandate

02 | Core Functions of the BSP

03 | Other BSP Functions

1
THE BSP’S MANDATE

“ …primary objective is to MAINTAIN

PRICE STABILITY conducive to a
balanced and sustainable growth of
the economy and employment.”

“…shall PROMOTE FINANCIAL

STABILITY…

“…shall OVERSEE THE PAYMENTS

& SETTLEMENT SYSTEMS in the
Philippines… in order to promote
sound and prudent practices
consistent with the maintenance of
financial stability.”

“…shall PROMOTE BROAD &

CONVENIENT ACCESS TO HIGH
QUALITY FINANCIAL SERVICES &
consider the interest of the general
public.”
2 CORE FUNCTIONS OF BSP

01 02 03
PRICE FINANCIAL EFFICIENT
STABILITY STABILITY PAYMENTS &
SETTLEMENTS
SYSTEM

through the conduct by promotion of a secure by providing channels

of monetary policy and reliable banking system through which funds are
by ensuring the safe and transferred among banks
sound operation of banks and other institutions
and other BSP-supervised
financial institutions (BSFIs)
2 CORE FUNCTION: PRICE STABILITY

Through the conduct

of Monetary Policy

01
PRICE
STABILITY
2 WHAT IS PRICE STABILITY?

• On average, prices neither increase nor decrease markedly.

• Price changes are negligible over time.
• There is low and stable inflation.
2 WHAT IS PRICE STABILITY?

• On average, prices neither increase nor decrease markedly.

• Price changes are negligible over time.
• There is low and stable inflation.
2 HOWHow
AREarePRICES MEASURED?
price changes measured?

Composition of CPI basket

(2012=100)

Food and non-alcoholic Clothing and

beverages (38.3%) footwear (2.9%)

Alcoholic beverages and

Education (3.3%) tobacco (1.6%)

Consumer
Price Index Furnishing, household
Transport (8.1%) equipment, and routine
(CPI) Basket house maintenance (2.9%)

Housing, water, electricity,

Health (3.9%) gas, and other fuels (22.0%)

Restaurants and
Communication (2.9%) miscellaneous goods and
services (12.6%)

Recreation and
culture (1.4%)
2 WHY IS PRICE STABILITY IMPORTANT?

Preserves
purchasing power

Increases certainty
in decision- making
2 HOW DOES THE BSP PROMOTE PRICE STABILITY?

MONETARY POLICY
actions by a central bank to manage the
✓ availability
✓ cost of money and credit
to influence overall
demand for goods and
services and ultimately attain
stable prices

Overall
Monetary
Demand Inflation
Policy for goods &
services
2 WHAT IS MONETARY POLICY?

Contractionary
monetary policy Expansionary
• Less money/ monetary policy
Higher interest rate • More money/
• Less spending Lower interest rate
• Slower growth in demand • More spending
• Lower inflation • Higher growth in
demand
• Higher inflation
2 HOW DOES THE BSP’S MONETARY POLICY WORK?

Case: Inflationary pressures due to excessive demand

Required action: BSP to slow down inflation by implementing
contractionary monetary policy by raising policy rate

Investment
BSP growth will be
Banks’
INCREASES slower Aggregate
interest Higher cost
Policy rates will demand
of
Interest follow the borrowing growth will be
Rate (RRP) increase Consumption
slower
growth will be
slower

LOWER
Inflation
2 HOW DOES THE BSP’S MONETARY POLICY WORK?

INFLATION
TARGETING

involves publicly
announcing an inflation
target which the BSP
promises to achieve over a
certain period
Inflation Targets:
2021-2022: 3.0% ± 1 ppt (2.0 – 4.0)
2023-2024: 3.0% ± 1 ppt (2.0 – 4.0)
2 CORE FUNCTION: FINANCIAL STABILITY

Promotion of a secure and

reliable banking system
by ensuring the safe
and sound operation
of banks and other BSFIs

02
FINANCIAL
STABILITY
2 OVERVIEW OF THE PHILIPPINES FINANCIAL SYSTEM

BSP
SEC, IC, CDA
Banking
Other FIs
Institutions NBFIs without Quasi-
Banking Functions
Universal with Quasi-
Banks Banking Functions
Lending Companies

Commercial Money Service

Banks Businesses
Investment Houses

Bank-affiliated
Thrift Banks Non-Bank Financial Financing
Institutions Companies

Rural Banks Pawnshops Capital Market

Participants

Non-Stock Savings Pre-Need

Cooperative
and Loans Companies
Banks Associations

Insurance
Digital Banks Companies

Cooperatives
Islamic Banks
2 PROMOTING FINANCIAL STABILITY

Financial Stability (FS) is about managing financial system risks so that these risks do not
create negative consequences to the rest of the economy. Thus, FS is about managing
risks that can disrupt the availability and effective delivery of financial products and
services

Managing systemic risk is

crucial to avoid the next crisis
Source: Understanding Financial Stability in the Philippines, http://www.bsp.gov.ph/downloads/primers/FSinPH.pdf
and Financial Stability Report (April 2020), http://www.bsp.gov.ph/downloads/Publications/2020/FSR2020.pdf
2 FINANCIAL SYSTEM INTERMEDIATION PROCESS

Our approach to financial stability treats the financial system just like
that of our house. We see the whole house (financial system), conscious
of how the different parts are linked with each other to provide
something bigger than the parts.

This also means that in protecting

the financial system, we have to be
conscious of the risks that can cut
across the different elements of our
financial house. This is the very
nature of managing risks which is
at the core of our pursuit of
financial stability

Source: Understanding Financial Stability in the Philippines, http://www.bsp.gov.ph/downloads/primers/FSinPH.pdf

2 HOW DOES THE BSP CONDUCT FINANCIAL
SUPERVISION AND REGULATION?

Issuance of rules of Conduct of

conduct/standard of examination/regular
operations investigation

safety & soundness of FIs

smooth functioning of
financial markets
protection of interests of
depositors & investors

Inquiring into
Risk profiling
solvency/liquidity
2 FINANCIAL SYSTEM INTERMEDIATION PROCESS

Financial Stability Matters to

EVERYONE
For individuals… For financial regulators…
A well-functioning financial market Attaining financial stability
facilitates bills payment, money transfer, eliminates the risks that can
settlement of obligations, and is a venue disrupt the orderly flow of
for our future via investments or savings. products and services to the
general public.

For corporates… For the Philippines…

Corporates need to raise capital for Financial Stability ensures that the
their business initiatives while relying economy is healthy and its growth is
on financial markets for day-to-day sustainable
services.

Source: Understanding Financial Stability in the Philippines, http://www.bsp.gov.ph/downloads/primers/FSinPH.pdf

2 CORE FUNCTION: EFFICIENT PAYMENTS AND
SETTLEMENTS SYSTEM

Providing channels
through which
funds are
transferred among
banks and other
institutions

03
EFFICIENT
PAYMENTS &
SETTLEMENTS
SYSTEM
2 WHAT IS AN EFFICIENT PAYMENTS AND
SETTLEMENTS SYSTEM?

includes institutional and

infrastructure arrangements
and processes through which
money is transferred from one party
to another

provides channels through

which funds are transferred to
discharge payment obligations
arising from economic and
financial transactions
2 HOW DOES THE BSP TAKE THE LEAD IN PROMOTING AN
EFFICIENT PAYMENTS & SETTLEMENTS SYSTEM?

RA No. 11127 or “The National Payment Systems Act” (NPSA)

Provide a policy and regulatory

Overseer
Regulator framework, also known as the National
Supervisor Retail Payment System or NRPS, to
establish safe, efficient, and reliable retail
of payment
systems payment system in the country.

Provide the necessary

Owner
infrastructure through the Operator
operations of the Philippine Payment
of real time
and Settlement System or the gross settlement
system
“PhilPaSS.”
3 OTHER FUNCTIONS OF THE BSP

ISSUER OF MONEY MANAGER OF OFFICIAL RESERVES BANK OF BANKS /

Only the BSP can The BSP manages the country’s GIR LENDER OF LAST RESORT
issue legal tender The BSP transacts with banks only,
and gives loans when warranted

OFFICIAL DEPOSITORY AND DETERMINATION OF THE

ADVISOR OF NATIONAL EXCHANGE RATE POLICY
GOVERNMENT BSP is in charge of the
The NG maintains deposits with the BSP, exchange rate policy
while the BSP advises to the NG pertaining
on matters to borrowings
KEY POINTS
• To preserve purchasing power, the BSP’s main
objective is to maintain price stability. It uses
inflation targeting as a framework for conducting
monetary policy. Consumers directly benefit.

• To help promote financial stability and a secure and

reliable banking system, the BSP manages systemic
risks and ensures the safe and sound operation of
banks and other BSFIs. Depositors, borrowers, and
other financial system players directly benefit.

• To ensure safe and efficient payments and

settlements of financial transactions, the BSP
provides policy and regulatory framework and
infrastructure essential to the effective functioning
of financial systems . Transacting parties directly
benefit.

THE ECONOMY AS A WHOLE

 Thank you.
Website: http://www.bsp.gov.ph
Email: [email protected]