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Russia: Central Bank Intervenes As Stocks Plunge

Moscow, 27 May 1998 (RFE/RL) -- Russia's Central Bank intervened today to try and halt the continuing fall in stocks and defend the value of the ruble. The bank raised its key refinancing rates to 150 percent -- a rise of 100 percent. The move is intended to shore up the value of the ruble, which is under threat as foreign and domestic investors withdraw funds from Russia's markets.

Government bond prices also rose steeply today to finish at 80 percent after a government auction of short-term bonds.

The Russian Trading System (RTS) index fell 12 percent from the previous day's trading in the wake of the failed privatization of Rosneft oil conglomerate and amid fears over the government's fiscal and monetary policies.

Prime Minister Sergei Kiriyenko said today that the government has no plans for a devaluation of the ruble. But a Kremlin spokesman said that Russian President Boris Yeltsin will tomorrow meet Kiriyenko, the finance minister, and the Central Bank head to discuss the crisis on the financial markets.

Yeltsin yesterday signed off on deep spending cuts to shore up Russia's shaky finances and restore the confidence of investors. The spending cuts are part of an austerity package drawn up by the government to trim the budget deficit as the cost of domestic borrowing soars. But concerns about a possible debt repayment problem is putting pressure on the ruble.

Russia is still waiting for the International Monetary Fund to unfreeze the latest tranche of a $10.2 billion loan which has been frozen because of poor tax collection. In a statement late yesterday, the IMF said it hoped to make a decision on releasing the tranche in the next few days.

There has been widespread speculation about an emergency IMF bail-out package ever since markets went into a tailspin earlier this month. But Russian Finance Minister Mikhail Zadornov yesterday denied reports that the government had asked for a stabilization package to ease pressure on the government debt market.