Peru central bank president irked by finance minister's jabs

LIMA, April 23 Wed Apr 23, 2014 9:39pm EDT

LIMA, April 23 (Reuters) - Peru's central bank chief said Wednesday that the finance minister was wrong to criticize the monetary authority's handling of the local currency, in a rare display of tensions between the country's top economic managers.

Finance Minister Luis Miguel Castilla had said this week that the central bank's interventions in the spot market were thwarting a transition to broader use of the local sol currency.

"When I speak with him I will tell him why we think he is wrong," said bank president Julio Velarde in response to a reporter's question about whether he should allow a faster "de-dollarization" of the economy.

The central bank has intervened in the local spot market to offset sudden gains made by the sol in recent weeks.

Castilla was quoted in the newspaper Gestion saying the bank's policy of avoiding abrupt fluctuations in the currency had led people to hold onto their dollars.

A spokeswoman with the finance ministry said Gestion's reporting was generally correct, though she could not vouch for any specific quotes.

The quarrel comes as the fast-paced economy has slowed to one of its weakest growth rates in the past decade. Peru is a top exporter of copper, silver and gold, but tumbling mineral shipments and weaker prices have dampened growth.

Castilla also said this week that the central bank and the banking regulator have been reluctant to work with him to better prepare for tougher economic times.

"There is resistance to getting this done," Castilla said in a videotaped presentation at an event on Tuesday. "Everyone wants to defend his own fiefdom."

Velarde dismissed that idea, saying the central bank is prepared for potential economic crisis.

"We always coordinate. We are clear about what needs to be done at every moment, but we do not argue with the minister through the press," Velarde said.

The central bank, which cut the interest rate for the first time in four years last November, recently revised down its forecast for economic growth this year to 5.5 percent from its previous view of 6 percent.

Castilla, a technocrat and former World Bank economist well respected by investors, is now widely seen as the most powerful minister in President Ollanta Humala's cabinet. (Reporting by Teresa Cespedes; Writing by Mitra Taj; Editing by Prudence Crowther)