February 10, 2017 / 9:44 PM / a year ago

UPDATE 1-Peru cenbank expects inflation to take longer to reach target range

(Adds context on weather, quote from central bank economist)

LIMA, Feb 10 (Reuters) - Peru’s central bank said Friday that it expects inflation to ease into its 1 percent to 3 percent target range in the second half of 2017 instead of mid-2017 as previously forecast as unusual weather squeezes food prices.

However, supply-side pressures on prices should be short-lived and the central bank still expects inflation to reach its previous year-end forecast of 2.3 percent, the bank’s economist Adrian Armas told reporters on a conference call.

Droughts that had gripped Peru in late 2016 have given way to rains and floods that have disrupted the delivery of food products from rural regions to the capital Lima.

Peru last week said that a “weak” El Nino phenomena had triggered recent downpours and that more wet weather was on the way.

Armas said the impacts of El Nino would likely affect crops in April or May.

“The convergence of inflation to the target range is going to take somewhat more time” than previously expected, Armas said on a conference call with reporters. “These climate factors weren’t here two months ago.”

Economic consultancy Capital Economics said it expects the central bank to hike the benchmark interest rate - held at 4.25 percent for the past year - by 25 basis points twice in 2017 to rein in an expected quickening of inflation.

Armas said the central bank still views its current monetary policy stance as expansive.

Reporting by Teresa Cespedes, Writing by Mitra Taj; Editing by Lisa Shumaker

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