Peru's Public Spending: A Fiscal Tightrope

Peru's high public spending is hindering efforts to reduce interest rates swiftly. The fiscal deficit, now exceeding government targets, is influenced by fast-growing public expenditures. Central Bank Governor Julio Velarde warns that unchecked spending could pose financial risks. Government spending played a role in economic recovery from recession.

Peru's escalating public spending, which has propelled the fiscal deficit beyond government targets, is impeding rapid interest rate cuts, according to the country's central bank chief. On Thursday, Central Bank Governor Julio Velarde expressed concerns over the burgeoning deficit.

The persistent high fiscal deficit restricts the central bank's capacity to lower interest rates quickly. This situation persists despite falling prices in the Andean nation and government calls for faster monetary easing.

Governor Velarde stated that unchecked public spending could become problematic. Peru currently maintains one of the region's lowest benchmark interest rates, already trimmed to 5.00% in November. The fiscal deficit, closing the second quarter at 4% of GDP, overshoots the economy ministry's target for 2024.

(With inputs from agencies.)