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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

said.

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

said.

"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

moscow.newsroom@reuters.com))

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