Inflation Targeting Analysis

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Assessment of Inflation Targeting by the BSP A monetary authority, reserve bank or what is often called as the central bank is a center that is in charge of the state or country’s currency, money supply and interest rates. Central Banks administer the commercial banking system of their own countries. The most important function of a central bank is to manage or to supervise the state or country’s money supply through keen commitment such as administering interest rates, demonstrating as a lender of last resort to the banking sector during financial calamity or crisis and establishing the reserve requirement. In the Philippines, BSP acts as the country’s central bank .It was initiated on July 3, 1993 following the presentation of Republic Act…show more content…
The inflation targeting framework starts with the government projecting or setting an inflation target 2 years in advance in deliberation with the BSP. Then, BSP together with the inter agency body broadcast the agreed inflation target. BSP evaluates monetary conditions, forecasts inflation and ponder on the monetary policy outlook. Now a question should be asked “Is inflation forecast in line with target?” If the answer is yes then the BSP reports highlights of Monetary Board discussions on monetary policy talks. It also publishes inflation report and release press or media statement. But if the answer is no then BSP should modify or adjust policy interest rate and utilize other monetary policy instruments. Further, BSP provide open letter to the President of the Republic of the Philippines. Lastly, the BSP reports highlights of Monetary Board discussions on monetary policy…show more content…
These exemptions acknowledge the constraint to the productiveness of monetary policy and divergence from the inflation target may at times occur due to elements beyond the control of the central bank. They take in price pressures turn up from: (1) variability in the prices of agricultural products; (2) variability in the prices of oil products; (3) unfortunate events that influence a major part of the economy or natural calamities; (4) essential government policy modification that directly influence prices such as modification in the tax structure, incentives and subsidies. The BSP will have to give explanations carefully and plainly to the public on how the abovementioned factors caused the divergence of the inflation results or outcome from the target using explanation clauses. The BSP also make reference to the actions to be taken as well as the length of time demanded to accomplish the inflation

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