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Russia ready to defend ruble as rocky ride continues

The Russian central bank said it was prepared to support the ruble in foreign exchange markets after it tumbled to new lows on Friday.

The ruble hit its weakest-ever level against the U.S. dollar early on Friday, sliding to 48.6, before recovering to trade at 46.2 within a few hours—1.3 percent higher on the day.

The central bank said in a statement cited by Reuters that it thought the currency was now undervalued and that the situation on the foreign exchange market was causing concern among the population.

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It added it was prepared to increase forex interventions "at any moment" to support the ruble, and could also use other financial instruments.

A decision on additional interventions to support the currency could be taken within several minutes and without prior warning, the bank said.

Five thousand rouble notes.
Stepan Popov | E+ | Getty Images
Five thousand rouble notes.

The huge swings came in a year which has seen the Russian currency plummet by roughly 40 percent against the dollar and around 26 percent against the euro.

After the ruble's bounceback on Friday, Liza Ermolenko of Capital Economics said the market situation had "turned around a bit".

"This could be the turning point for the ruble," the emerging markets economist told CNBC.

Investor sentiment has been hit by a wave of concerns, primarily Russia's ongoing incursions in Ukraine and the risk of harsher sanctions from the West. There are also falling oil prices—Russia's main export—a struggling economy and the weight of sanctions already imposed on the country by the U.S. and Europe. Plus, there has been a broad decline in emerging market sentiment.

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This month's announcement from the Russian central bank that it would rein back on interventions to support the ruble caused an upsurge in investor fear, destabilizing the currency further. The change in policy should allow the ruble to largely free float, making its near-term path less predictable.

Timothy Ash, head of emerging market research at Standard Bank, said the ruble's move higher on Friday was driven by expectations that the central bank will have to intervene— despite earlier comments—to stop any further dramatic declines.

"The CBR (Central Bank of Russia) now has to make sure that they do not disappoint...the market now expects action, and very significant action," he said in a note.

After Friday's rocky ride, Angus Campbell, senior analyst at FxPro, said the ruble could be ready for a "bit of a correction".

"I think it is susceptible to a rise. Earlier this day, it had a very sharp move to the downside and in a short space of time it has given that back—you are looking at a currency that is very susceptible to a sudden turnaround, because it has weakened so much recently," he told CNBC.

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Ermolenko said the market would likely gradually stabilize as the practical implications of the central bank's policy changes became clearer.

"It is going to be quite volatile, as there is a lot of uncertainty about the new central bank framework… It is unlikely to stage a dramatic recovery, but it is likely to recover over the next few weeks," she told CNBC.

- By CNBC's Katy Barnato and Antonia Matthews