The change in monetary policy in the Philippines from ‘monetary targeting’
in the 1980s and 1990s to ‘inflation targeting’ in 2002 has so far resulted in a less
contractionary monetary policy. Whether this more liberal policy will continue faces a
critical test as the world and the Philippines face inflationary pressures from world oil
prices. The problem is that both the monetary targeting and inflation targeting regimes
are based on a demand explanation of inflation that blames overexpansion of money and
credit for inflation. The evidence for the Philippines proves otherwise – the inflation
experience through the decades had been mostly a supply-led and cost-push phenomenon.
This paper proposes an alternative set of monetary policies to inflation targeting which
veers away from the idea that monetary policy should have a single objective of fighting
inflation and ‘overspending’, towards a viewpoint wherein monetary policy is part and
parcel of a larger macro policy that contributes to economic development.