The BSP’s journey towards a progressive monetary policy framework

This paper examines the evolution of monetary policy framework in the country. It starts the journey with the establishment of the central bank after the Second World War, when there was still no active monetary policy as the country operated on a fixed exchange rate system and supply-led credit programs. The paper describes the challenges with the implementation of monetary policy reforms in the 1980s, particularly the shift to a “managed float” exchange rate system and the adoption of monetary aggregate targeting framework in the context of deregulation and liberalization. It further discusses the development of monetary policy framework and operations, following the creation of an independent Bangko Sentral ng Pilipinas (BSP) in 1993, with the primary mandate of maintaining price stability. It provides a narrative on how the monetary aggregate targeting framework was modified to its eventual shift to an inflation targeting (IT) framework. It highlights the relative success of IT and discusses the innovative approaches undertaken by the BSP to further enhance liquidity management. Moving forward, the BSP’s monetary policy framework and operations will likely continue evolving and serving as steady anchors of macroeconomic stabilization. This will be guided by foresight, commitment to action and helpful lessons from the past, in the context of increased uncertainty.