08/26/1998 11:46:24 EMERGING MARKETS FX - Rouble in free fall
By Mike Dolan
LONDON, Aug 26 (Reuters) - The Russian rouble was in
freefall on Wednesday, forcing a suspension of Moscow exchange
trading in the wake of the announcement on Tuesday of its debt
restructuring plans and as domestic political tensions rose.
Central European currencies, the Mexican peso and South
African rand weakened in sympathy and fresh jitters seeped into
emerging markets across the world. Only Asia seemed indifferent
and regional currencies there were mixed.
Analysts said the prospect of a severe tightening of
exchange controls in Russia now looked like the only way the
authorities could defend the currency.
The psychological impact of this alone would add further
pressure to currency markets elsewhere, they said.
"We're almost certain to get a tightening of restrictions on
rouble convertibility in the next couple of days," said one
Russia economist at a European bank in London.
"In effect in Russia, we've stepped back three or four years
in terms of its transition to a market economy."
Traders said indicative rouble quotes were all over the
place and analysts said there was now little or no hope of
central bank maintaining it's newly introduced rouble floor of
9.5 per dollar in anything resembling a free-market environment.
On August 17, the Russian central bank lowered its effective
rouble floor to 9.5 per dollar from 7.13 previously and
announced 90-moratorium on short-term rouble debt.
The Russian central bank is estimated to have spent about $1
billion in just two trading days alone, dealers said, and the
new government was unlikely to sanction continued bleeding of
hard currency reserves.
Acting Prime Minister Viktor Chernomyrdin said he was
"extremely dissatisfied" with the work of the central bank over
the past two days.
The central bank suspended dollar/rouble trading on Moscow
Interbank Currency Exchange (MICEX) and said there would be no
fixing on Wednesday after a further five percent rouble slide to
8.26 per dollar was registered in early trade. The currency
dropped more than 9 percent on Tuesday.
However, a mark/rouble fixing at 7.6 roubles per mark was 69
percent higher than Tuesday's fix and would imply a dollar
rouble rate at about 10.45 per dollar -- well below the new
official floor announced just nine day ago.
"There's no indication of where this is trading at the
moment, it's anyone's guess," said Stuart Brown, head of
emerging markets research at Banque Paribas.
Analysts said the uncertainty surrounding Russia's foreign
exchange policy, the effective default on its debts and the
political implications of rising inflation would probably force
the rouble to overshoot to extreme levels.
They said the new government's priorities of paying wage
arrears, bailing out banks and subsidising industry would
require them to print more roubles and accept a sharp rise in
Possible overshoot levels touted around by some analysts
ranged from anywhere between 15 and 20 per dollar.
"They need to change their exchange rate policy," Augusto
Lopez Carlos, Russia economist at Lehman Brothers told Reuters
Television. "The (new) policy has added a great deal of
uncertainty to the rouble and nobody knows what price target the
central bnak is aiming for at year-end."
"I would hope...the IMF, the central bank and the government
will discuss a formulation of a better exchange rate policy,"
said Lopez Carlos, suggesting a pre-announced crawling peg as a
Elsewhere, the rouble slide pushed Polish zloty almost two
percentage points lower against its target basket while the the
Czech crown lost more than one percent against the mark.
The Hungarian forint and Slovak crown were also weaker.
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 2.38 per dollar bid.
Analysts said they expect an effective devaluation of the
hryvnia of up to 50 percent to be announced by the government as
the IMF debates disbursement of its latest $2.2 billion tranche
of funds to the Ukraine.
As a precursor to Latin American trade later, the Mexican
peso was also trading almost two percent weaker at 9.75 per
FOREX MARKET SNAPSHOT. The following is a snapshot of emerging
markets currency rates. Double-click on currency codes for
updated price quotes.
* ASIA <AFX=>
* Chinese yuan <CNY=> at 8.2799 vs 8.2800 on Tuesday
* New Taiwanese dollar <TWD=> 34.802 vs 34.80
* Indonesian rupiah <IDR=> 10,850 vs 10,950
* Malaysian ringgit <MYR=> 4.1925 per dollar bid vs 4.2155
* Thai baht <THB=TH> at 41.60 per dollar vs 41.50
* Philippine peso <PHP=> 43.50 per dollar vs 43.40
* South Korean won <KRW=> at 1,307 per dollar vs 1,306
* Indian rupee <INR=> 42.45 per dollar vs 42.46
* EUROPE <EUROPEFX=>
* Russian rouble <RUB=> fix on MICEX abandoned after trading as
high as 8.26 per dollar in early trade vs 7.86 Tuesday but
indicated at about 10.45
* Zloty 0.86 percent above target basket parity vs 2.81
percent late on Tuesday
* Mark/Czech crown <DEMCZK=> at 18.581 bid vs 18.348
* Slovak crown <DEMSKK=> 4.28 pct below target basket vs 3.85
percent late Tuesday
* Ukrainian hryvnia <UAH=> at 2.38 per dollar vs 2.29
* Romanian leu <ROL=> at 8,845 per dollar vs 8,840
* AFRICA <AFRICAFX=> & MIDEAST <MEFX=>
* Israeli shekel <ILS=> 3.7328 bid on dollar from Tuesday's
* South African rand <ZAR=> at 6.370 per dollar vs 6.270
* Kenyan shilling <KES=> at 59.43 vs 59.40
* LATIN AMERICA <LATAMFX=>
* Mexican peso <MXN=> at 9.75 per dollar vs 9.56
* Brazil's real <BRL=> at 1.1747 per dollar vs 1.1725
* Venezuela bolivar <VEB=> 575.75 vs 576.25
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