Investing.com - The Russia rouble fell against the dollar and the euro on Tuesday, reversing a rally in the previous session after the country’s central bank said it would allow the currency to float freely.
USD/RUB was up 1.61% to 49.91 after falling to lows of 44.95 on Monday.
On Monday, the Bank of Russia said it was abandoning the rouble’s trading band and would allow the exchange rate to float freely. The bank added that it would intervene in the foreign exchange market at any time if it saw any threat to financial stability.
The bank also announced plans to limit domestic rouble liquidity in a bid to discourage domestic investors from betting against the currency.
The measures will protect the bank's reserves by eliminating the trading corridor it had set for the rouble and the regular interventions it staged in a bid to stem the depreciation of the currency.
The rouble found additional support after Russia President Vladimir Putin dismissed the recent steep decline in the currency as “speculative”.
The rouble rallied against the dollar and the euro following the announcement, with USD/RUB pulling further back from the record high of 48.61 hit last Thursday, and EUR/RUB moving away from Thursday’s all-time highs of 60.27.
The euro gained 1.11% against the rouble on Tuesday, rising to 57.85.
The rouble has come under heavy selling pressure this year, pressured lower by ongoing tensions in eastern Ukraine and broad based risk aversion towards Russia, as well the falling price of oil, Russia’s main export.
Sanctions imposed on Russia by the U.S. and the European Union for what they say is its role in backing separatists in eastern Ukraine have weakened the rouble, caused a spike in inflation and have almost completely shut Russian companies out of the global financial markets.
Russia’s central bank also cut its forecast for economic growth this year on Monday and warned that it expected sanctions to remain in place until 2017. However, it still expects the economy to avoid a deep recession even if oil prices continue to slide.