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Moscow - The rouble edged higher on Friday afternoon amid signs that Russia's central bank could take emergency action to halt a sharp slide that analysts said amounted to a full-blown currency crisis.
The rouble appeared to be in free-fall in morning trading, falling over 3% against both the dollar and the euro, following similar falls on Thursday.
But the currency recouped some ground in the early afternoon on market speculation of an emergency central bank meeting. A source told Reuters that the bank's Governor Elvira Nabiullina was holding a meeting, without providing further details.
By 13:00, the rouble was 0.4% weaker from the previous close, at 47.07 against the dollar.
The Russian currency was 0.4% weaker at 58.29 against the euro, and 0.4% weaker at 52.10 against a dollar-euro basket.
"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 $350m a day.
Citi economist Ivan Tchakarov said in a note that "the rouble slide in the last couple of days is starting to turn into a clear and present risk to macroeconomic and financial stability in the country".
The central bank "can ill afford a situation where the rouble weakness turns into a possible rout," he added, calling for the bank to "massively and unpredictably intervene in the FX market".
Also on Wednesday, the central bank reserved the option of carrying out ad hoc currency interventions in order to preserve financial stability.
Immediate action?
Several analysts said on Friday that this rubicon has now been crossed, requiring immediate central bank action in the form of heavy market interventions to defend the rouble.
"In our view, if today's market conditions do not satisfy such criteria, then we are at something of a loss for the central bank's true reaction function," Sberbank CIB analysts said in a note.
"If - and we are far from confident it will - the CBR does intervene today, we would suggest several bouts of heavy FX sales, perhaps each in the region of $5bn. An alternative is a single $10bn shot."
Analysts also speculated that the central bank may be forced to carry out an emergency increase in interest rates, despite raising its key lending rate by 1.5 percentage points to 9.5% last Friday.
"Past form suggests that rates may need to rise to as much as 11.50% to 12.00%," said Neil Shearing, chief emerging markets economist at Capital Economics, said in a note.
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 $30bn 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.
"It is becoming increasingly clear that the ceasefire in eastern Ukraine has broken down - and both sides of the conflict are now quite openly admitting this," Danske Bank analysts said in note.
The rouble is also being impacted by weaker prices for oil, one of Russia's key exports, as Brent crude futures dropped below $83, near a four-year low.
More than just fundamentals
However, analysts said that the slide in the rouble seen over recent days cannot be explained by economic fundamentals alone, arguing that it is now being driven by ordinary Russians exchanging rouble savings into dollars.
"We think the rouble's 30% 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 in dollar terms were also sharply lower on Friday, with the RTS index reaching a five-year low below 1 000 points, weighed down by the weaker rouble.
At 13:00, the RTS had recovered slightly and was down 0.3% to 1 014 points, while its rouble-based peer Micex was up 1.1% at 1 513 points, conversely supported by the slide in the rouble.
