Ruble Firm as State Goes to Single Forex Session

Russia on Tuesday took a step back toward free convertibility of the ruble, returning to a single trading session for foreign exchange transactions but retaining a host of other administrative measures that help support the currency.

The change to one session had no real impact on the value of the Russian currency. The Central Bank quoted the ruble rate on Tuesday at 24.22 against the dollar, the same rate as the previous two trading days. The ruble's recent stability is in part thanks to moderately strong world oil prices and a burgeoning trade surplus f both of which bring hard currency into Russia and weaken pressure on the ruble.

And the Central Bank has vowed to try to keep it stable. Announcing the new unified ruble trading session, the bank said that the currency would not be allowed to deviate by more than 15 percent.

The Central Bank did not provide details on how it intended to prevent such deviations, however. Analysts said the statement was probably an effort to talk up the currency's reputation.

"This is probably simply a commitment that they will either defend the currency at that level or shut down trading if needed," said Roland Nash, chief economist at MFK Renaissance.

The Central Bank will, however, have other tools at hand. Though it has reverted to a single unified currency trading session, a massive web of regulations governing hard currency trade remains.

"Despite the new trading session, capital controls are in place all the same," Nash said. "The Central Bank can still use these measures to exert control over the exchange rate.

"The Central Bank has issued 59 regulations since the August crisis aimed at supporting the ruble through administrative means; 58 of them are still in place," Nash added.

During Tuesday's one-hour trading session f held between 12:30 p.m. and 1:30 p.m. on the Moscow Interbank Currency Exchange f the ruble edged downward a minuscule 0.09 kopeks, dropping from 24.2249 to the dollar to 24.2240.

It did so on trading volumes of $195.52 million, up from $124 million on Monday. The volumes were larger than has been usual in recent weeks, but Tuesday's unified session added in a further six exchanges throughout Russia to MICEX's electronic trading system, SELT.

For the short term, the ruble will almost certainly sit where it is relative to the dollar, analysts said.

"The ruble is restricted more by other controls, especially the controls on export earnings, so I am not expecting any major change in the exchange rate," said Natalya Orlova, economist at Alfa-Bank.

"The ruble may drop to 25 to the dollar but it will stay stable, especially if the IMF approves fresh loans."

The special morning trading session that had been in place before Tuesday had been restricted to exporters selling repatriated hard currency earnings to the Central Bank, plus importers of goods, and had taken place only at MICEX.

Initiated last October to help prevent further sharp slides in the value of the ruble, the special morning session had been complemented by an afternoon session open to importers of services and Russian banks operating under the fairly strict supervision of the Central Bank.

The ruble was normally weaker against the dollar in the afternoon session, creating two exchange rates for the Russian currency. Such a situation put Russian in breach of Article 8 of the International Monetary Fund's charter, making it difficult for the fund to disburse further funds to Russia.

Now the IMF has one less reason to worry. But for the ruble, another cloud on the horizon is the 60 billion ruble liquidity bulge sitting in banks' correspondent accounts, a dangerous pool of money that has doubled since March, analysts said.

The Central Bank's administrative straitjacket has kept that potential flood of cash away from the currency markets, even though dollars remain the best investment instrument in Russia.

"The fact that money has stayed away from the foreign exchange market is a tribute to the strength of the Central Bank's controls," said Peter Ekman, an independent Moscow-based financial analyst.

According to preliminary figures released by the State Statistics Committee, Russia's gross domestic product shrank by 3 percent in the first quarter of this year f a better performance than the 8 percent to 15 percent contraction that most economists were predicting at the start of 1999.