08/25/1998 12:38:11 ANALYSIS-Fall of Russian rouble tests c.bank will
By Julie Tolkacheva
MOSCOW, Aug 25 (Reuters) - Russia's rouble suffered its
largest one-day fall for almost four years on Tuesday, sliding
10 percent against the dollar to levels that once again test the
will of the central bank to defend the battered currency.
If such a slide continues over the next two days, the rouble
will be at the new, lower level of a trading band which came
into force last week, a point where the central bank must decide
to fight for the currency or let it slip further.
Given a lack of reserves and a continuing financial crisis
which has severely damaged investor confidence, the decision is
going to be tough, analysts said.
"People do not want roubles -- it is just that simple," Dirk
Damrau, head of research at MFK-Renaissance, told Reuters
Television. "There is no reason to be calm to be honest."
The rouble was fixed 10 percent lower at 7.8600 to the
dollar Tuesday on the Moscow Interbank Currency Exchange, where
trading was stopped twice as circuit breakers kicked in.
The currency is now approaching the bottom of the new
6.0/9.5 to the dollar corridor, set just last week as part of a
package of crisis monetary measures. On August 14, the Friday
before the measures were announced, the rouble was fixed at 6.31
to the dollar.
With its reserves depleted from previous attempts to support
the currency, Damrau said the central bank must be having second
thoughts about significant intervention to support the currency.
"If the government chooses to maintain the floating exchange
rate, it will be tested much more quickly then we thought," he
The Tuesday plunge is the largest since a 30 percent fall on
a "Black Tuesday" in October 1994, when the rouble/dollar rate
was set freely by the market.
The central bank later tried to keep the rouble in a
corridor of 5.27/7.13 to the dollar, which it managed to
maintain despite repeated financial crises until last Monday.
The central bank's gold and foreign exchange reserves
amounted to $15.1 billion on August 20, down from $17.0 billion
on August 7.
It is expecting further payments from a $22.6 billion
IMF-led bailout in July, with the bulk of the payments going to
the central bank to support the rouble.
However, the IMF disburses funds on a quarterly basis and
each disbursal must be approved by its board. The government now
expects the IMF to release a $4.8 billion tranche in September.
Thierry Malleret, chief economist at Alfa Capital, said the
rouble's quick depreciation would go at a high speed and the
government might be tempted to introduce controls on the foreign
exchange market for want of other available measures.
"The central bank does not have sufficient reserves to
support the rouble," he said.
Malleret said the rouble was undervalued by about 20 percent
from the point of view of Russia's fundamentals and the
purchasing power parity.
"But if you look at the rouble as a share price of the
country, which it is in the short-term, it is tremendously
overvalued, especially given that it was pegged to the currency
of a highly successful country, the United States," he said.
Dealers said that the spark for the fresh rouble slide was
that the central bank, trying to ease banks' liquidity problems,
had cut their obligatory reserve requirements by one percentage
point to 10 percent from Monday.
"All the roubles which came into the banks immediately went
to the (MICEX) exchange" to buy dollars, an Inkombank dealer
"I have never seen such a difference (between demand and
supply), it was $400 million," he added.
He said the rouble could fall to 9.0-9.5 roubles per dollar
on Wednesday or Thursday.
"Everything depends on the central bank. Everyone only buys
(dollars), no one is selling them apart from the central bank,
even it does not want to do it on a big scale," he said.
((Moscow Newsroom, +7095 941-8520