* Food prices expected to ease in coming months
* Growth forecast for 2017 trimmed to 4.3 pct from 4.5 pct
* Public investments must recover to support economic growth
(Adds central bank forecasts for inflation, quotes from bank
By Ursula Scollo and Teresa Cespedes
LIMA, Dec 16 Peru's central bank raised its 2016
inflation outlook to 3.3 percent from 3.0 percent on Friday,
citing a drought-induced spike in food prices that could delay
its goal of bringing inflation to 2.0 percent by as much as a
The central bank had expected inflation to slow to 3.0
percent in 2016 before cooling to 2.0 percent in 2017 in its
last quarterly report in September.
But higher food prices as a drought grips rice and potato
farming regions prompted the bank to raise its 2017 inflation
forecast to 2.3 percent, which would mark the first year that
inflation falls within its 1-3 percent target range since 2013.
"We're worried that it could impact expectations for
inflation," Central Bank President Julio Velarde said of the
drought during a presentation of the central bank's report. "We
expect a correction" of food prices in coming months, he added.
Velarde said it was too early to gauge the longer-term
impacts of the drought as rains could fall soon.
The central bank left the interest rate unchanged at 4.25
percent for the tenth month in a row on Thursday, but noted that
the drought was fanning inflation and that construction and
manufacturing had been hit by a lack of investment.
The central bank trimmed its view for 2017 growth to 4.3
percent from 4.5 percent but maintained its forecasts for a 4
percent expansion this year and 4.2 percent in 2018.
Velarde said the sharp drop in public investments in the
fourth quarter needs to be reversed to help the economy grow by
its potential pace of 4 percent.
In all of 2016, public investment would likely grow only
about 0.1 percent, Velarde said, adding that he expected a
recovery to 7.4 percent next year.
Peruvian President Pedro Pablo Kuczynski, a former
investment banker who took office July 28, promised to revive
slackening domestic demand with an infrastructure boom that
would bring sorely needed public works to far-flung corners of
But a sharp drop in infrastructure spending by the central
government in October prompted the steepest contraction in
construction activity in 12 years, putting a drag on the
mining-fueled economic recovery.
Earlier on Friday the finance minister said the drop in
public investments was due to a transition toward a bigger role
for the private sector in public works.
The economy likely grew 3.2 percent in the fourth quarter
and would grow likely expand 4.2 percent in the first quarter,
(Reporting By Ursula Scollo and Teresa Cespedes, Writing by
Mitra Taj; Editing by Dan Grebler)