MANILA - An economist urged the Bangko Sentral ng Pilipinas to lower interest rates further to offset the economic impact of the recent storms that devastated the country.

Economic professor Victor Abola of the University of Asia and the Pacific said that reducing rates will allow government and the private sector to borrow more to fund rehabilitation.

At its October 2 rate setting meeting, the Monetary Board decided to keep the bank's key policy interest rates at 4% for overnight borrowing and 6% for overnight lending since the global economic recovery is expected to be slow. The policy making body said caution needs to be exercised in assessing the sustainability of domestic demand in the Philippines.

"The BSP is so detached from the actual situation in the country," Abola said, noting that about 30 million Filipinos are suffering from poverty while housing is a problem for more than 3 million households. He said reducing interest rates would help reduce poverty and allow more Filipinos to afford to have their own homes.

"Should not the Bangko Sentral reconsider its present 'pause policy' and instead allow more money and credit growth precisely at a time when a combination of monetary and fiscal policies are needed to spur the struggling economy?" he said, adding that the central bank could afford to cut its policy rates by 50 basis points to 3.5% for overnight borrowing, without fueling inflation.

Abola said that monetary authorities should not worry about inflation as crude oil costs have so far been stable.

He added that interest rates in the country remain high at 4%, compared to 1.25% in Thailand and 2% in Malaysia.

Abola stressed that the International Monetary Fund warned that a premature exit from accommodative monetary and fiscal policies is a principal concern.

"A lower policy rate would result in a lower borrowing cost for the government, lower interest on loans to the private sector, and lower cost of housing loans," he said.

In particular, he said bringing down the interest rates on housing loans to 11.5% and stretching the repayment period up to 25 years would enable 15% to 20% of Filipino households to qualify for housing loans.

This would address the housing backlog of 3 million units in the country. At present, only 150,000 to 200,000 housing units are created each year, Abola said. "By keeping interest rates high, we are preventing these people from owning houses," he said.

"While the Central Bank is talking about exit strategy from accommodative policy, the reality is we need stimulation," he said.