where these are headed. have we hit the bottom yet?... are we at the top? bottom? is the bsp holding steady?... these are important concerns, of course, because where the peso is and where interest rates are, feed directly and quite concretely into the everyday lives of filipinos. but, i don ’ t have to speak about directionals tonight … everyday you come across some quote from me on these financial prices … so i am certain you already know the stance of the bsp … one, that, the exchange rate will remain market - determined … although, folks, be very aware that the bsp is watching how you conduct yourselves in the market … two, that the policy interest rates will always primarily be dictated by the inflation outlook … but balanced off against concerns on excesses in other segments in the market such as real assets and capital flows. you know that our current assessment is – that inflation over the policy horizon will remain well within our target range of 3 – 5 percent. you must also know that the implication of this on interest rates is that interest rates will remain low over this period. many of you already have a good handle on how the bsp conducts monetary policy and our exchange rate policy. i can say that we have had some success in communicating monetary policy to the market. but we still need to work on conveying the nuances when it comes to financial stability. so, instead of one - dimensional directionals, i would like us to spend the next few minutes discussing financial stability. in the bsp, we believe it is important to pursue financial stability because financial stability makes the transmission of other policies ( including monetary policy ) more effective … moreover, we pursue it because financial stability helps financial institutions better allocate resources. when the risk / return tradeoffs are known and steady, returns are more “ predictable ” even when the risks are relatively higher. in other words, financial stability benefits both the policy makers and the market. so what ’ s new about financial stability? the original draft of this speech contained the bsp financial stability framework … our definition of financial stability … the governance framework in the bsp … and how we are pushing the agenda to go past the bsp borders. but in the interest of time, let me just focus on a couple of points ( well, five points to be precise ) to help you better appreciate what we mean in the bsp when we talk about financial stability, and hopefully

of domestic goods and services. meanwhile, domestic output expansion remains robust on account of the expansion in capital formation and household consumption, as well as strong performance of the services and industry sectors. recent high - frequency sector indicators of economic activity also continue to point to firm growth prospects in the near term. the growth momentum was also supported by a strong and stable philippine banking system. during the review quarter, banks ’ balance sheets exhibited sustained growth in assets and deposits. furthermore, asset quality indicators remained healthy while capital adequacy ratios continued to be above international standards. domestic liquidity also remained ample, driven by robust credit growth. however, amid this resilience, the philippine economy is being tested by external headwinds emanating from the recent and planned interest rate hikes by the us fed and brewing trade tensions among key economies. these are exerting depreciation pressures on the peso. the country ’ s current account deficit and higher inflation also dampened investor sentiment during the quarter. 1 / 2 bis central bankers'speeches these developments formed the backdrop for the bsp ’ s policy decisions during the second quarter of 2018. in brief, the bsp raised its policy rate by 25 basis points each in may and june, bringing the overnight reverse repurchase ( rrp ) rate to 3. 50 percent from 3. 0 percent a quarter ago. the interest rates on the overnight lending and deposit facilities were likewise raised accordingly. in deciding to hike the policy rate during the quarter, the monetary board noted that the increase in inflation expectations and in the risks of possible second - round effects argued for timely and decisive monetary policy actions from the bsp. although inflation expectations remain within the target range for 2019, elevated expectations for 2018 highlighted the risk posed by sustained price pressures on future wage and price outcomes. equally important, upside risks continued to dominate the inflation outlook, as various measures of core inflation continued to rise. meanwhile, the bsp kept a close eye on developments in the foreign exchange market and noted their potential impact on inflation in the coming months. the bsp believes that its monetary policy actions during the quarter signal its strong commitment to safeguard macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies. the bsp likewise reiterates its support for carefully coordinated efforts with other government agencies in implementing non - monetary measures to help mitigate the impact of supply - side factors on inflation and social welfare. accordingly, the bsp will sustain