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Mexico Won't Cut Rates This Year, Banco Compartamos CFO Says

by Fabio Alves, March 26, 2008

Mexico's central bank won't cut interest rates this year because inflation is accelerating, according to Banco Compartamos' Chief Financial Officer Fernando Alvarez Toca.

"Food and fuel costs are putting pressure on inflation,'', Toca said in an interview in New York. "The last inflation reading changed our views that the central bank could cut rates by at least a quarter percentage point as consumer prices won't be lower as previously expected.''

Consumer prices climbed 0.48 percent in the first half of March, topping estimates of a 0.21 percent increase from 14 economists surveyed by Bloomberg. Annual inflation of 4.24 percent was the highest since October 2006, reducing the odds of lower borrowing costs. Mexico's central bank has kept the overnight lending rate at 7.5 percent for the past six months.

Banco Compartamos, a Mexican lender that makes so-called micro-finance loans to small companies and entrepreneurs, may increase its loans by as much as 40 percent this year from 4.2 billion pesos ($393.3 million), Alvarez said before attending an investor conference at the New York Stock Exchange. A reduction in operating costs will allow the bank to cut its average lending rate by 3 percentage points, he said.

"Our target market is so unattended and under serviced, that we'll be able to expand lending even as the economy slows and the benchmark interest rates remain stable,'' Alvarez said.

Banco Compartamos climbed 4.1 percent to 45.91 pesos at 1:01 p.m. New York time in Mexico City trading.