MercoPress. South Atlantic News Agency

Brazilian currency and stock market drop on World Bank forecast

Further interest rate cuts are anticipated by economists

Brazil’s currency, Real fell the most in four months battered by the World Bank’s prediction of a deeper recession in 2009 pushed by investors fleeing higher-yielding, emerging-market assets.

The real dropped 2.9% to 2.0326 per US dollar, from 1.9752 on June 19, the biggest one-day decline since February 17. The Bovespa stock index plunged the most in three months and bond yields slipped.

The World Bank said the global recession this year will be deeper than it predicted in March and warned that a flight of capital from developing nations will swell the ranks of the poor and the unemployed.

The world economy will contract 2.9%, compared with a previous forecast of a 1.7% decline, the Washington- based lender said in a report released Monday. Growth will be 2% next year, down from a 2.3% prediction, the bank said.

Speculation the central bank will cut the benchmark lending rate once more this year also hurt the real, making returns on the country’s fixed-income assets less attractive.

Brazil’s central bank will cut the benchmark Selic interest rate to 8.75% in July, according to the median forecast in a June 19 central bank survey of about 100 economists published Monday.

Policy makers this month cut the Selic rate more than economists estimated to a record low of 9.25%. They cut borrowing costs four times this year, reducing the rate from 13.75% to shore up the economy amid the global financial crisis.

Brazil’s Bovespa stock index plunged 3.7% on Monday, led by commodity exporters. It has gained 32% so far this year while the Real is up 14% in 2009.