[MOSCOW] Russia stepped up its defence of the rouble on Wednesday as it sought to halt a run on the currency and stem the worst financial crisis of President Vladimir Putin's 15 years in power.
The intervention came as Washington prepared to pile further sanctions on Russia over its support for the separatist insurgency in Ukraine, which have combined with falling oil prices to produce the perfect storm for the currency to go into freefall.
The rouble, which lost a fifth of its value in a single day on Tuesday, has lost 60 per cent of its value since the beginning of the year.
The economic storm clouds present a major challenge for Mr Putin, 62, and will test his ability to ride out the economic turmoil and his confrontation with the West over Ukraine.
"There is reason for cautious optimism," Putin spokesman Dmitry Peskov said in televised remarks, referring to the economic outlook.
The rouble rallied slightly in late afternoon trading, reaching 61.50 to the dollar from 67.88 on Tuesday evening, and at 76.50 to the euro from 85.15.
The rise came after Prime Minister Dmitry Medvedev voiced confidence that Moscow can contain the crisis and the finance ministry said it was selling around US$7 billion (S$9.2 billion) to prop up the rouble.
"What we are seeing today is by and large playing on emotions," Mr Medvedev told a televised meeting of ministers and exporters.
"We have experience in making anti-crisis decisions." The Russian central bank announced a series of measures aimed at "stabilising the financial system." The measures seek to ease access to foreign currency and protect banks from having to book losses that would weaken their financial strength.
The central bank also reiterated it would work with the government to recapitalise some lenders in 2015.
The bank added it had spent US$1.96 billion on Monday in a bid to prop up the currency, taking to over US$10 billion it has spent on propping up the rouble since the start of the month.
The Bank of Russia's currency reserves were worth US$415 billion on December 5.
Russia's economy had aready been slowing before Moscow annexed Crimea in March and subsequently supported insurgents in eastern Ukraine, but the sanctions and the halving oil prices threaten to push Russia into a sharp recession.
Heavily dependent on the export of natural resources, the central bank estimated the Russian economy could contract by five per cent next year, before it hiked interest rates that will slow activity further.
The collapse of the value of the rouble will squeeze Russians as most consumer goods are imported.
Mr Putin, who has remained conspicuously silent on the rouble collapse, came into the firing line on Wednesday.
"We've lost the feeling that Putin is a kind of magician who can control everything," wrote the wide-circulation daily Moskovsky Komsomolets, saying the president had heretofore been "Teflon Putin".
The Russian president is scheduled to hold his annual end-of-the-year news conference on Thursday.
"It's unclear what they want to do and what will happen in the future," said Vyacheslav, a Muscovite in his 20s.
"I think the 1990s will be back," referring to years of high inflation which ended with a collapse of the rouble and the government defaulting when oil prices dropped.
Mr Putin's popularity has so far remained sky high, but his 15-year rule has been marked by relative prosperity and economic stability.
Observers warned that the corner has not been turned on the crisis.
"This is a very dangerous situation," wrote the Vedomosti business daily in an editorial, warning of a "panic" mood.
"It could be just days before a full-on run on the banks by account holders." Alfa Bank said "calming the population and preemptively addressing any banking sector issues is of the utmost importance." The central bank's strategy faced harsh criticism.
"The central bank has buried the rouble," Nezavisimaya Gazeta daily said.
Showing an apparent split in government, Deputy Prime Minister Dmitry Rogozin complained that interest rates were now too high for the defence industry, which he oversees, after the central bank hiked them by 6.5 percentage points earlier this week in a failed attempt to stabilise the rouble.
"17 per cent, as was 10 per cent, is an insuperable barrier for the development of (the defence) industry," he wrote on Facebook.