What role does the Bangko Sentral ng Pilipinas (BSP) play in controlling inflation?
Answer (1)
The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines, and one of its main responsibilities is to maintain price stability. This means keeping inflation at a level that is not too high or too low—ideally around 2% to 4% annually. The BSP plays a crucial role in making sure prices of goods and services remain stable so that Filipino families and businesses can plan their spending and investments properly.How BSP Controls InflationThe BSP controls inflation through monetary policy, especially by adjusting the interest rates. When inflation is rising too fast, the BSP raises interest rates to make borrowing more expensive and encourage people to save more instead of spend. Less spending means lower demand, and this helps slow down price increases.For example, in 2022, when inflation went up because of expensive fuel and food, the BSP raised interest rates to slow down the economy and bring inflation back to target. This policy made loans more expensive, but it also helped protect the value of the peso and reduce pressure on prices.Aside from interest rates, the BSP also uses tools like open market operations (buying and selling government securities) and reserve requirements (the amount of money banks must keep and not lend out) to influence how much money circulates in the economy.The BSP also provides inflation forecasts and updates to the public. This helps people, businesses, and investors make informed decisions. For example, if the BSP expects inflation to rise, businesses might prepare by adjusting prices early or planning expenses wisely.
