EMERGING MARKETS-Mexican peso rises on rate hike bets, Brazil real softens

* Brazil inflation hits highest for April in 26 years * Mexico’s Banxico policy statement due Thursday 1800 GMT * Brazil’s Gol airline, Colombia’s Avianca strike deal (Adds comments, updates prices throughout) By Anisha Sircar and Shreyashi Sanyal May 11 (Reuters) – Mexico’s peso firmed on Wednesday ahead of a central bank decision later in the week, while Brazil’s real gave back gains by afternoon trading following a high inflation reading. The Mexican peso gained 0.5% before a monetary policy meeting by the central bank, also known as Banxico, on Thursday which is expected to hike its benchmark interest rate for the eighth consecutive time. Central banks in emerging markets have raised rates significantly and in Latin American economies, policy has now reached restrictive territory and should help to moderate demand, Morgan Stanley researchers wrote in a note. “Within Latin America, Mexico’s peso should be a relative outperformer, supported by decent growth in the U.S. and an outperformance of oil versus base metals,” the researchers added. Brazil’s real was flat after rising as much as 0.8% after data showed inflation slowed in April but posted the steepest rise for the month in 26 years. Inflationary pressures have led the central bank to signal another rate hike in June, after already raising rates to 12.75% from a 2% record low in March last year. “We suspect that inflation will begin to fall back from this month,” said William Jackson, chief emerging markets economist at Capital Economics, adding energy inflation should slow as a surge in commodity prices cool. “But even so, the strength of price pressures is likely to keep policymakers at the central bank concerned.” Oil prices jumped more than 5% on Wednesday, buoyed by supply concerns as flows of Russian gas to Europe fell by a quarter. Chile’s peso rose 0.6% against the dollar, tracking stronger copper prices as slowing COVID-19 infections in top metals consumer China eased near-term demand concerns. MSCI’s index of Latam currencies firmed 0.7%, snapping four straight days in the red, as the dollar dipper. Data showed U.S. inflation was unlikely to cause the Federal Reserve to adjust their aggressive path of monetary policy tightening. Stocks in Latin America strengthened, with the Brazil’s Bovespa index up 1.3%. Miner Vale and state-run oil firm Petrobras boosted Sao Paulo stocks. Brazilian carrier Gol Linhas Aereas Inteligentes SA and Colombia’s Avianca said they were combining under the roof of a common holding company, signaling a move toward post-pandemic Latin American airline consolidation. Key Latin American stock indexes and currencies at xxx GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1011.22 0.4 MSCI LatAm 2195.52 1.68 Brazil Bovespa 104396.90 1.25 Mexico IPC 49276.72 0.33 Chile IPSA 4676.39 -0.44 Argentina MerVal 85762.84 2.493 Colombia COLCAP 1509.00 -0.18 Currencies Latest Daily % change Brazil real 5.1423 0.04 Mexico peso 20.3140 0.34 Chile peso 861.9 0.46 Colombia peso 4076.7 -0.14 Peru sol 3.786 -0.03 Argentina peso (interbank) 117.0800 -0.12 Argentina peso (parallel) 202 0.00 (Reporting by Anisha Sircar and Shreyashi Sanyal in Bengaluru; Editing by Angus MacSwan and Alistair Bell)