President Vladimir Putin on Wednesday dismissed growing speculation about an imminent currency devaluation as the Russian ruble hit five-year lows amid growing capital outflows and diminishing central bank support.
The Russian leader said a day after a meeting with Central Bank chief Elvira Nabiullina that the government welcomed greater ruble flexibility that could reinvigorate sluggish growth.
The Central Bank had announced earlier this month that it was withdrawing "targeted" daily currency trading interventions as it moves toward a fully floating exchange rate by the start of next year.
"The Central Bank is now only partially involved in currency regulation," Putin said during a meeting with university students in Moscow.
"And the freer the Russian currency, the better -- in the long run -- it will be overall because this will force the economy to be more effective."
Putin added that Nabiullina "did not say anything at all" about a government-orchestrated currency devaluation that could help Russian industry by making the country's goods more competitive abroad.
He spoke only moments before Industry and Trade Minister Denis Manturov told parliament that Russia's industrial production rate "managed to reach 2012 levels" after being in decline for most of the year.
The Russian ruble has hit five-year lows this week against the Central Bank's foreign currency basket of dollars and euros -- a politically worrying trend for the Kremlin because of the accompanying rise in the cost of living.
It stood at 33.89 against the greenback and 45.99 against the single European currency in evening trading -- rates not seen since the worst months of Russia's 2008-2009 financial crisis.
Economists attributed the latest decline to the Central Bank's decision to stop spending up to $60 million (44 million euros) a day on efforts to keep the ruble within a predetermined trading range.
The Central Bank still reserves the right to spend between $200 million and $400 million a day on "non-targeted" interventions that kick in when the ruble falls outside the defined band's boundaries.
Traders interpreted the decision as a sign that the Central Bank was partially giving up its expensive defence of the Russian currency in a weak economic climate and immediately began buying up dollars and euros.
But economists also attributed the ruble's weakness to $62.7 billion in investment capital outflows that amounted to three percent of gross domestic product last year.
Russia's external position also deteriorated due to a falling trade surplus and meagre foreign investment.
The London-based Capital Economics consultancy noted that Russia's current account surplus last year was unable to cover capital outflows forthe first time in five years.
One "consequence of Russia's deteriorating external position is that the ruble is likely to continue to weaken," Capital Economics observed in a research note.
'Situation not critical'
Economy Minister Alexei Ulyukayev took pains on Wednesday to dispel growing seeds of panic among both currency traders and ordinary Russians who are watching their bank accounts' value slowly erode.
"Right now, the situation is not critical -- absolutely not," the Prime news agency quoted Ulyukayev as saying.
An annual growth rate of just 1.2 percent in the third quarter of 2013 means that Russia's $2.0-trillion economy is now certain to achieve its worst economic performance since 2009.
Economists attribute the country's pains to a variety of factors that boil down to an urgent need to switch to a new economic model reliant on innovation and investment instead of oil and natural gas exports.
But some have also applauded recent attempts by President Vladimir Putin's team to clean up the corrupt banking sector and take stricter measures against offshore activity.
Moody's Analytics noted that unsecured consumer lending saw overdue loan payments soar by 41 percent in the first 11 months of 2013.
"However, tightening regulations... are aimed at improving asset quality and reducing portfolio risk in order to enhance stability of the system," Moody's said in the Russian government's praise.