• ACI Russia

08/25/1998 10:30:44 EMERGING MARKETS FX - Rouble falls almost 11 pct

By Mike Dolan

LONDON, Aug 25 (Reuters) - A sudden slump of almost eleven

percent in the Russian rouble on Tuesday left emerging market

currencies on edge across the board and reined in early gains by

central and eastern European units.

A severe shortage of dollars on the Moscow Interbank

Currency Exchange (MICEX) on Tuesday, where some say about $300

million of bids went unsatisfied in early trade, led to the

rouble's lurch lower, analysts said. The market dislocation

forced a brief suspension of trade before the official fixing.

The rouble was eventually fixed at 7.86 per dollar compard

with 7.14 on Monday, a drop of 10.8 percent. The Russian central

bank's new broad trading band, announced on August 17, is

between 6.0 and 9.5 per dollar.

Even more worrying, traders said, was the rouble/mark fix at

4.4995, implying a market rate for dollar/rouble at about 8.06.

Suspicion the Russian central bank is reluctant to use its

foreign exchange reserves to defend the currency, while at the

same time covertly providing liquidity to ailing domestic banks,

has accelerated the currency's fall, analysts said.

They said the announcement of Russian debt restructuring,

following last week's news of a 90-day moratorium on short-term

rouble debt, is expected later Tuesday and jitters ahead of the

plan are keeping markets in suspense.

"Foreign investors are already expecting the worst from

this, so in many respects they may be happy to get anything at

all," said Claudio Demolli, emerging markets analyst at ABN Amro

in London.

"Russia may try to take advantage of this and try and tailor

the package to look well locally, especially as the political

pendulum has now swung back domestically with (new acting prime

minister) Chernomyrdin," he said.

Analysts said there have been guarantees that foreigners and

domestic investors in the rouble Treaaury bills (GKOs) will be

treated equally in the debt restructuring, but few are yet

convinced that will be the case.

They saw no sign of an end to market pessimism.

"Whatever about the outlook for Russian hard currency debt,

only a maniac would get back into a rouble-denominated security

at this point," said Paul MacNamara, emerging markets economist

at Bank Julius Baer.

"At this point, I think we're all spectators."

Analysts in Moscow said the latest rouble lurch lower was

worrying, given what it suggested about central bank policy.

"The drop reflects the fact that the central bank of Russia

must be having second thoughts, even at these levels, about

using significant intervention to defend the currency," Dirk

Damrau, economist at MFK Renaissance in Moscow, told Reuters


"If the government chooses to maintain a floating exchange

rate, then 9.5 to the dollar will be tested much more quickly

than we initially thought. But that's a big 'if'," he said.

Damrau said the government must be considering some further

exchange controls on households and banks, not least because

drops of 10 percent in one day will probably be magnified by

street traders and in currency exchamge kiosks.

Elsewhere, the sudden rouble slide took the shine off a

positive start for the Polish zloty and the Czech crown.

The zloty rose as high as 5.0 percent above its parity

against its target basket in early trade but retreated later to

about 2.5 percent above following the rouble plunge.

Gains by the Czech and Slovak crowns were also partly


The Ukranian hyrvnia continued to trade well outside its

central bank's target range of 1.80-to-2.25 per dollar and was

last quoted at 2.29 per dollar bid.

Earlier in Asia, a rangebound dollar/yen and Monday's

rebound in global stock markets helped buoy regional currencies

there. The Indonesian rupiah outperformed as the local central

bank said it did not rule out a return to a managed foreign

exchange regime.

FOREX MARKET SNAPSHOT. The following is a snapshot of emerging

markets currency rates. Double-click on currency codes for

updated price quotes.


* Chinese yuan <CNY=> at 8.2800 vs 8.2799 on Monday

* New Taiwanese dollar <TWD=> 34.808 vs 34.805

* Indonesian rupiah <IDR=> 10,800 vs 11,150

* Malaysian ringgit <MYR=> 4.20 per dollar bid vs 4.202

* Thai baht <THB=TH> at 41.50 per dollar vs 41.47

* Philippine peso <PHP=> 43.25 per dollar vs 43.33

* South Korean won <KRW=> at 1,306 per dollar vs 1,307

* Indian rupee <INR=> 42.487 per dollar vs 42.485


* Russian rouble <RUB=> fixed on MICEX at 7.86 per dollar vs

7.14 Monday but estimated to be trading about 8.06

* Zloty 2.74 percent above target basket parity vs 3.55

percent late on Monday

* Mark/Czech crown <DEMCZK=> at 18.412 bid vs 18.314

* Slovak crown <DEMSKK=> 3.85 pct below target basket vs 3.90

percent late Monday

* Ukrainian hryvnia <UAH=> at 2.29 per dollar vs 2.29

* Romanian leu <ROL=> at 8,853 per dollar vs 8,825


* Israeli shekel <ILS=> 3.7215 bid on dollar from Monday's


* South African rand <ZAR=> at 6.270 per dollar vs 6.275

* Kenyan shilling <KES=> at 59.43 vs 59.45


* Mexican peso <MXN=> at 9.68 per dollar vs 9.66

* Brazil's real <BRL=> at 1.1747 per dollar vs 1.1747

* Venezuela bolivar <VEB=> 576.00 vs 576.00

((London newsroom +44 171 542 6762, fax 583 7239,


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