Plans to slash three zeros off the Russian rouble will have a neutral affect on the currency's value on the foreign exchanges but will enhance confidence in Russia's fight against inflation, London-based analysts said.

The rouble reforms, announced yesterday, will take place at the beginning of 1998 and will mean that one new rouble will be worth 1,000 old ones, or 17 cents at current rates.

Analysts said the net impact of the move will be felt internally by making big-ticket transactions less unwieldy in roubles, rendering the use of dollars for these purposes less attractive.

The biggest rouble note in circulation at present is 500,000, or about $86.

A greater willingness to hold the domestic currency will help dampen inflationary expectations further, analysts said.

"For foreign investors this move is fairly neutral but in the bigger picture it's a tangible sign of Russia's success in reducing inflation," said Mr David Boren, economist at Salomon Brothers in London.

The Russian government is forecasting inflation will dip to 11 per cent this year as a whole from about 14.5 per cent in June and 22 per cent in 1996. Inflation had soared to more than 1,000 per cent in the early 1990s and the rouble collapsed as reform of the former Soviet economy got underway.

"It's all about confidence. Theoretically the re-denomination will have no effect on the rouble's external value," said Mr Joe Prendergast, head of currency strategy at CSFB.

After an initial flurry of rouble sales on the announcement, the unit steadied quickly and at midday in Europe was little changed from Friday at 5801/03 per dollar.

Since mid-1995 the central bank has held the rouble in a pre-announced currency band allowing a gradual devaluation. The mechanism is similar to a crawling peg devaluation but with an upper and lower limit rather than a central peg.