Peru's high public spending holding back faster interest rate cuts, cenbank chief says
MEXICO CITY, Nov 28 (Reuters) -Peru's high public spending, which has pushed the fiscal deficit past the government's target, is hindering quick reductions in interest rates, the country's central bank chief said on Thursday.
WHY IT'S IMPORTANT
Peru's high fiscal deficit limits the central bank's ability to cut interest rates more rapidly, even as prices fall in the Andean nation and as the government calls for accelerated monetary easing.
KEY QUOTES
"It is too high," Central Bank Governor Julio Velarde said of public spending. "One factor that limits quick reductions in the interest rate is that public spending is growing too fast and needs to be controlled."
Velarde said it could be worrying if the high spending trend continues. "In Peru we have seen what can happen if it gets out of control and we have to be clear about that."
BY THE NUMBERS
Peru currently has one of the region's lowest benchmark interest rates. The central bank cut the rate to 5.00% in November.
The current fiscal deficit, which at the end of the second quarter stood at 4% of GDP, exceeds the economy ministry's target of 2.8% for the end of 2024. The budget's red ink marks the highest deficit since 2020, when pandemic-related measures pushed it to nearly 9% of GDP.
KEY CONTEXT
Government spending helped fuel the economy's recovery from a recession last year, with the government forecasting economic growth of 3.2% in 2024.
Velarde in September attributed Peru's high deficit to a surge in public spending along with falling revenue, as well as the government's financial support to heavily-indebted state oil company Petroperu PETROBC1.LM.
Reporting by Marco Aquino; Writing by Brendan O'Boyle; Editing by Bill Berkrot
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