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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

inflation.

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

option.

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

dollar.

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

3.7287

* 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

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

uk.emergingmarkets.news@reuters.com))

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