Russia's central bank said Monday it is floating the ruble and will intervene to prop up the currency which has lost nearly a quarter of its value so far this year only if "financial stability" is threatened.
Members of social network group "I Really Like Putin" carry a giant 1,000 ruble banknote in Moscow on August 18, 2011
The Bank of Russia announced in a statement it was immediately removing the range it had fixed for the ruble up to now, allowing it to float freely on the market.
But that "did not amount to a total renunciation of any interventions in the currency market, which would be possible in case a threat to financial stability appears," it said.
Panic selling has erupted as the ruble lost 10 percent of its value last week alone amid plunging oil prices and fallout from the Ukraine crisis.
Russian President Vladimir Putin on Monday expressed confidence that the ruble would soon stabilise thanks to the central bank's actions.
The Russian strongman blamed speculation for the currency's volatility, insisting that it was "absolutely" no reflection of the country's economic situation.
"We can see speculative moves in the exchange rate, but I think that will end very soon, given the actions taken by the central bank in response to the speculators," said Putin in Beijing, where he is attending the Asia-Pacific Economic Cooperation (APEC) summit.
The Bank of Russia, which had been planning float the ruble next year in order to shift to inflation-targeting like central banks in the West, had been progressively enlarging the range for the ruble to fluctuate.
But the ruble has fallen as Western sanctions on Russia over its role in the Ukraine crisis have led to a surge in capital flight from the country.
The central bank's crawling trading band for the ruble encouraged speculation as traders would bet against the currency when it neared its lower limit in the knowledge that the central bank would intervene to some extent but then shift the ruble trading band lower.
The Bank of Russia said in a statement Friday that it spent $30 billion in October to keep the ruble afloat, vowing to spend more if needed "as well as use other financial instruments at its disposal."
- Intervention to counter speculation -
On Monday the banking authorities were again seeking to reassure the market and the Russians who have seen their buying power collapse.
"We will intervene in the currency market at any moment with the necessary volumes to break the effect of any surge or speculative movement," said the central bank chief Elvira Nabiullina on Russian television.
She also said the bank was "temporarily limiting" liquidity of the ruble to guard against speculators in foreign currencies.
"The financial authorities have taken all the necessary measures," said Putin, adding that they do not intend to impose capital controls.
The Russian currency on Monday afternoon climbed to 56.54 rubles to the euro and 45.29 rubles to the dollar -- far from the record lows it touched last week of 60 rubles against the euro and 48 against the dollar.
Analysts however cautioned that the increasing tensions in eastern Ukraine could again impact the ruble, or that the market might test the central bank's resolve.
"We remain worried that the market might want to test the will of the regulator to act and might wait for strong interventions to halt the negative spiral," said analysts at VTB Capital.
And some wonder if the measures are coming too late.
"What's being done now should have been done in August," when the market was less fragile, a government source who requested anonymity told the official Ria-Novosti news agency.