Oct. 17--AN economist from the University of Asia and the Pacific (UA&P) said the Bangko Sentral ng Pilipinas (BSP) is preventing the domestic economy in recovering faster from the current global slump . Vic Abola said the BSP is "hoarding" money in its vaults by refusing to bring down further its policy rates.

"The BSP's moves of mopping up liquidity have somehow offset its earlier 'easier monetary policy' stance ," he said.

"With so much money hoarded in BSP's vaults, the national government and corporate bond issuers have had to pay higher interest rates on their debt issues," he added.

From January to August, the BSP's reserve money rose by P8.1 billion to P898.47 billion.

While it was "creating money" to the tune of P190.6 billion in building up its gross international reserves, the BSP however "sterilized" or bought back P182.5 billion through reverse repurchase agreements (RRPs) and its Special Deposit Accounts (SDAs), Abola said.

"These two liquidity draining items combined have risen P229.1 billion or way higher than the [amount the] BSP created through the purchase of dollars," he said.

He said that SDAs have risen to P691.4 billion as of August from only P50 billion in April 2007. "As these and [RRPs] are liabilities of the BSP, it has to pay interest on these, often at rates higher than the national government's own 91-day Treasury bills," he added.

The economist said the BSP should further trim its interest rates by 25 basis points to minimize the attractiveness of SDAs.

SDA is a fixed-term deposit with the BSP available to banks, quasi-banks and trust institutions, while RRPs are instruments the central bank uses to reduce the amount of money in the financial system.

The Monetary Board earlier kept its policy rates steady for a second month, after reducing them by 200 basis points since December last year. The overnight borrowing and lending rates stand at record lows of 4 percent and 6 percent, respectively.

"To achieve higher growth, we need to let interest rates drop below present levels and allow the peso to depreciate a little," Abola however said.

The local currency has been appreciating in recent weeks due to a weak dollar and rising risk appetite.

At the Philippine Dealing System, the peso ended the week at 46.66 to the greenback from 46.33 on Thursday when the local currency touched a new one-year high.

Abola said inflation is not a concern this year and next, adding that it can be resolved later.

"Spurring the economy at a much faster rate is difficult for us right now," he said.

The UA&P professor said the county can achieve growth rates of 2.5 percent and 4 percent this year and next year if the BSP will continue to cut interest rates.

In the first half of the year, the economy grew 1 percent, within the government's target of between 0.8 percent and 1.8 percent.

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