What is the main role of the Bangko Sentral ng Pilipinas (BSP) in controlling inflation?
A. To increase wages directly
B. To lower taxes on imported goods
C. To adjust interest rates through monetary policy
D. To set prices of essential commodities
Answer (2)
The correct answer is letter C. To adjust interest rates through monetary policyThe Bangko Sentral ng Pilipinas (BSP) plays a critical role in managing inflation by adjusting interest rates, which is part of what we call monetary policy. When inflation is high, the BSP usually raises interest rates to make borrowing more expensive. This slows down spending and reduces pressure on prices.For example, if inflation in the Philippines starts climbing due to high fuel or food costs, the BSP may increase the policy rate. This makes car loans, credit card purchases, and housing loans more costly. As a result, people will think twice before spending, and businesses may slow down expansion. This drop in spending helps to stabilize prices.The BSP doesn’t set prices like a market vendor, and it doesn’t control wages. Its job is to manage money supply and demand through its tools—interest rates, open market operations, and reserve requirements.So whenever you hear that the BSP “hiked rates,” it’s their way of fighting inflation and keeping the economy balanced.
The correct answer is C. To adjust interest rates through monetary policy.The Bangko Sentral ng Pilipinas (BSP) controls inflation primarily by using monetary policy tools, especially by adjusting interest rates. When inflation is high, BSP can increase interest rates to make borrowing more expensive, which reduces spending and slows down price increases. Conversely, it can lower rates to stimulate the economy when inflation is low. BSP does not directly set wages, taxes, or prices of goods.
