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. Last Updated: 07/27/2016

New Forex Rules Not Seen Hurting Reserves

The reduction in the amount of hard currency companies are obliged to exchange for rubles is not expected to have a major impact on the forex market nor prevent the Central Bank from building up its foreign currency reserves, dealers said Tuesday.

Earlier this month, the State Duma, despite opposition from Central Bank Chairman Viktor Gerashchenko, approved a cut in the volume of hard currency revenues that exporters are forced to sell.

The amount of the obligatory sale, introduced to support the ruble after the 1998 crisis, was cut to 50 percent of hard currency earnings from 75 percent. Gerashchenko said a cut should be delayed so the bank could build up its reserves.

Officials dismissed Gerashchenko's worries ahead of the implementation of the new system, expected this fall.

"The impact of the cut in the volume of obligatory sales will be neutral," said Andrei Cherepanov, head of the Finance Ministry's foreign debt department. Cherepanov, a former Central Bank employee, has championed killing the rule altogether.

"In the medium-term it will lead to an insignificant increase of [dollar] sale volumes on the market, partially because business will be done more honestly, there will be fewer incentives for hiding the revenues."

An interdepartmental group is working on plans that could lead to the eventual scrapping of the rule by 2004.

"If the members of the working group take into consideration only the logic of developing business, then they can only come to one conclusion: that there should be no obligatory sale of currency," Cherepanov said.

President Vladimir Putin, who has made currency liberalization a priority, has yet to sign the current bill into law, but the government has said it will come into force later this year.

As well as propping up the ruble, the Central Bank used the obligatory sales rule to accumulate dollars for foreign debt payments. However, the order had loopholes that meant only about 50 percent of revenues were repatriated.

Gerashchenko has said he wants to build up reserves to $45 billion from the current level of $36 billion before making any cut in obligatory sales, which are made at a special currency trade session called the unified session.

But market operators said the bank's activity in the market had not changed since the Duma vote.

"It sometimes carries out aggressive intervention which could be linked with foreign debt payments or with the Finance Ministry's wish to convert its obligations at a lower exchange rate," said one bank dealer.

"In principle, the market should not change because exporters will replace the Central Bank, and [exporters] will sell on the open market instead of the unified session," a commercial bank official said.

Analysts said the Central Bank had lost a lever to influence the market, but could find ways around it.

"It will, of course, be more difficult for the Central Bank to manage the official rate and more difficult to accumulate hard currency and gold reserves," said bank Zenit chief economist Alexander Karpov.