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EMERGING MARKETS-Mexican peso up ahead of likely interest rate hike

·3 min read

By Susan Mathew Aug 11 (Reuters) - Most Latin American currencies joined a broader tick up in emerging market shares as optimism from softer growth in U.S. inflation continued, with focus turning to a slew of central bank decisions from the region due later in the day. Mexico's central bank is expected to deliver a second consecutive 75 basis points hike, taking the benchmark interest rate to a new historic level of 8.5% after inflation surged to its highest level in nearly 22 years in July. "An even bigger rate step cannot be ruled out and would probably boost the peso," said Elisabeth Andreae, FX and EM analyst at Commerzbank. Mexico's peso was up 0.5%, staying close to six-week highs hit last session. Peru's central bank is seen hiking its key rate by 50 bps, in what would be its 13th straight hike, to 6.5%. Peru's annual inflation rate stood at 8.74% on a year-on-year basis in July, edging lower from its highest in a quarter of a century. Meanwhile, Argentina's tightly controlled peso fell 0.2% ahead of inflation data for July. Traders expect the central bank to hike rates by 600 basis points to 66% on Thursday as analysts now expect inflation to hit 90.2% in 2022. Several emerging market central banks have embarked upon monetary policy tightening cycles in the face of surging prices as economies recover from the shock of the COVID-19 pandemic and the Russian-Ukraine war. Additionally, they've had to stay ahead of the U.S. Federal Reserve's tightening cycle. Some relief came on Wednesday when data showed U.S. inflation remained unchanged in July, prompting markets to scale back expectations of a third 75 bps hike in September. Brazil's real, which has outperformed this year thanks to one the world's most aggressive central bank tightening cycles, edged lower. Data showed services activity in Brazil rose for the second month in a row in June, beating expectations. The sector accounts for about 70% of all activity in Latin America's largest economy. The real is in for volatility as October presidential elections approach. In his re-election bid, President Jair Bolsonaro said he plans to proceed with simplifying the tax regime, lower taxes for companies and reduce import tariffs to foster trade. Bolsonaro did not mention privatizing state-controlled oil company Petrobras, in contrast to his 2018 election plan that dedicated specific pages to Petrobras. Petrobras shares were up 0.3%, in line with higher oil prices. Key Latin American stock indexes and currencies at 1418 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1017.06 1.99 MSCI LatAm 2275.77 0.2 Brazil Bovespa 110835.74 0.54 Mexico IPC 48049.43 0.5 Chile IPSA 5268.83 -0.08 Argentina MerVal - - Colombia COLCAP 1319.20 0.39 Currencies Latest Daily % change Brazil real 5.0912 -0.14 Mexico peso 19.9280 0.44 Chile peso 883 0.46 Colombia peso 4233.23 0.82 Peru sol 3.889 -0.27 Argentina peso 134.2000 -0.14 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Susan Fenton)