The rouble plummeted on Friday, falling over 3 per cent against both the dollar and the euro after the central bank relaxed its exchange rate policy, with analysts warning a self-fulfilling currency crisis could be under way.
The rouble weakened to over 48 roubles per dollar for the first time in the opening minutes of trading. A short time later it was trading 3.5 per cent weaker from the previous close, at 48.52 against the dollar.
The Russian currency was also 3.5 per cent weaker at 60.09 against the euro. Currency dealers said the rouble was already valued at around 60 versus the euro and at 48.5 versus the dollar in pre-exchange trading.
"This is full-blown panic, with signs of a self-fulfilling currency crisis," Dmitry Polevoy, chief Russia economist at ING Bank in Moscow, said in a note. "At such times, the central bank should intervene, after all if this isn't a risk to financial stability, then what is?"
On Wednesday, the central bank altered its interventions policy to limit its support for the Russian currency by cutting the size of its interventions to $350 million a day, barring threats to financial stability.
The bank’s ultimate objective is to float the rouble and shift to an inflation-targeting regime.
Plunging oil prices and Western sanctions over the Ukraine crisis have shrivelled Russia's exports and investment inflows, driving the rouble lower over several months.
But the rouble has taken a particularly heavy hit since the beginning of October, with the central bank spending around $30 billion to prop up the ailing currency, its largest monthly interventions in over five years.
On Friday, talk of renewed fighting in eastern Ukraine, where both sides have accused each other of violating a fragile ceasefire, added further pressure to Russian assets.
So too did weaker prices for oil, one of Russia’s key exports, as Brent crude futures dropped below $83, near a four-year low. Major price falls are capable of blowing a huge hole in the country’s balance of payments.
"We think the rouble's 30 per cent depreciation year-to-date clearly poses certain risks for financial stability, as not many will have assumed such a dramatic price action when doing their business planning," said Maxim Korovin, a forex analyst at VTB Capital in Moscow.
“Although some increase in geopolitical risks yesterday added to FX volatility, the key pressure on the rouble is most likely now primarily from households, which is a self-fulfilling process,” he said.
Russian shares were also sharply lower on Friday, with the dollar-denominated RTS index reaching a five-year low below 1,000 points, weighed down by the weaker rouble.