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Itaú Believes Strong Rebound In Services Doesn’t Support May Rate Cut

MEXICO
  • Itaú note that the better-than-expected 4.4% y/y increase in economic activity in February was supported by favourable calendar base effects, and that using calendar adjusted figures, GDP growth stood at 2.7% y/y. Nonetheless, on a seasonally-adjusted basis, GDP still rose by a strong 1.4% m/m in February, supported mainly by an improvement in the services sector and robust primary output, offsetting soft industrial production.
  • In their view, while February’s monthly GDP print was strong, activity is still likely to see a softer than expected sequential expansion in Q1, which puts a downward bias to their 2.8% GDP growth estimate. In terms of monetary policy, however, Itaú believe that the strong rebound in the services sector in February does not support a rate cut at the May 9 MPC meeting, when they expect Banxico to stay on hold at 11%.
  • This is consistent with more cautious rhetoric from Banxico officials in recent days, including Deputy Governor Heath who to reiterate said that he is leaning towards a pause in May.
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