EM LATAM CREDIT: New Issue Update: Brazil's Raizen SA (Baa3/BBBneg/BBB)

Today’s CPI report hasn’t altered analyst views for next week’s BoC decision, with a 25bp cut widely expected in line with the 21bp now priced vs 18-19bp beforehand. Scotia would rather the BoC doesn’t cut.

• BMO: “[T]he news on core also wasn't exactly friendly, with the three-month trend in the two major measures forging back above 3%. Even so, we believe that the heavy overhang of trade uncertainty—possible U.S. tariffs—overrides almost all else. As a result, we suspect that today's reading is just good enough to allow the BoC to trim next week, for risk management purposes.”
• CIBC: “Canada's inflation data is only going to get harder to dissect in January, with the full month impact from the GST/HST tax break taking hold. Any news on the tariff front will also muddy the picture for inflation ahead. However, through the volatility it still appears that core price pressures are low enough, and the economy weak enough, to justify a 25bp reduction in interest rates from the BoC next week.”
• RBC: Headline at 1.8% was above RBC’s assumption for a 1.5% increase “largely due to a smaller than assumed reduction in prices from the temporary GST/HST holiday in December […] The CPI data will be impacted by the tax holiday into February, but a weakened Canadian GDP and elevated unemployment rate (with the potential for protectionist U.S. trade policy to make both worse) is pushing inflation expectations from businesses and households lower. That leaves the risks on price growth tilted to the downside and argue for further BoC interest rate cuts.”
• Scotia: “I don’t believe that the BoC should cut but they may well take the easy route in what’s priced. Jobs are ripping. Core inflation remains unacceptably warm. All of the BoC’s survey measures of inflation expectations are at or above the upper limit of the 1–3% inflation target range. Q4 GDP growth is tracking close to 2% q/q SAAR using monthly GDP accounts and possibly more on an expenditure accounts basis. Consumption is rebounding including in per capita terms. US tariffs loom and all signs point to strong Canadian retaliation that would add to underlying price pressures. The BoC is already at or very close to a neutral rate by contrast to the Federal Reserve. The Fed is waiting it out at 125bps above the BoC. CAD is a lepper in FX markets threatening to push into the 1.60s in a tariff and retaliation scenario.”
• TD: “Despite the tax cut driven dip in headline inflation, core inflation pressures have picked up over the past three months, suggesting that inflation readings are likely to move up a bit in the months ahead. This will give the BoC reason to adopt a more gradual pace of interest rate cuts this year. We expect a quarter point cut at every other decision in 2025.” However, potentially incoming tariffs “creates a very challenging backdrop for Canada's economy, and we expect the BoC to cut rates a quarter point next week, which would put interest rates further into "neutral" territory – a stance we think is warranted given relatively soft demand backdrop for Canada's economy.”

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