Putin speech sparks more ruble volatility

Russian President Vladimir Putin blamed "external factors" for the country's ongoing economic problems on Thursday, but failed to reassure investors hoping for quick answers, sparking another bumpy day for the ruble.

Putin sought to reassure the country that it would overcome its present difficulties and return to economic growth by 2017 by the latest, as the global economy needs more of its oil.

However, he failed to reassure currency traders about the ruble's fate - the Russian currency's value sank by around 6 percent against the U.S. dollar as he spoke, before paring losses. This happened as the price of oil, as measured in Brent crude futures, rose by 2.3 percent over the course of the day - which would usually cause the ruble to strengthen.

Later Thursday, the Russian finance ministry announced that the government stood ready to to give systemically important banks total of up to 1 trillion rubles ($16 billion) in state support.

Putin, the longest-serving Russian leader since Joseph Stalin ruled the Soviet Union, compared Russia to a bear which could "sit quietly and eat honey" -- or Western goods and funds.

He added that "they" (i.e. the Western powers) are trying to put the bear "on a leash" and pull out its teeth.

"Do we want our bear to become a stuffed animal?," he asked the more than 1,000 reporters who attended the president's annual press conference.

Putin's remarks come toward the end of the most turbulent week of a difficult year for Russia, which has seen stock markets and the currency tumble.

Russian President Vladimir Putin at the Kremlin.
Alexei Nikolsky | RIA Novosti | Kremlin | Reuters
Russian President Vladimir Putin at the Kremlin.

The economic turmoil does not appear to have dented Putin's personal popularity. About 80 percent of Russians still support him, according to an Associated Press-NORC Center for Public Affairs Research poll released Thursday - ratings which most Western leaders could only dream of. Asked about the possibility of a coup by a journalist, he said: "There can be no stronger base than the support of the Russian people."

Eager to appear optimistic, Putin told the audience that the economic situation might start improving earlier, although he added the caveat that "a lot of factors of uncertainty exist."

He also appeared to take a swipe at Russia's central bank and the speed of its response to the crisis with its shock 6.5 percent interest rate increase to 17 percent earlier this week.

Putin said: "The central bank and government, on the whole, are acting adequately. I believe that some actions could have been made quicker but I believe that (there) must be a pragmatic approach."

"His defense of the team was not that whole-hearted and after listening to him I would still expect significant changes to follow in the government and even the CBR," Tim Ash, head of emerging markets research at Standard Bank, wrote in a research note.

Vladimir Putin
Vladimir Putin: What you need to know   

A dramatic film-style trailer for the speech on Russian TV, featuring images of soldiers in Ukraine, Olympic victories and warnings to the U.S., suggested that Putin was unlikely to adopt the conciliatory tone that many hoped for.

The country's economic problems make for a sobering read. It is battling with a currency which has nearly halved in value against the U.S. dollar this year; drastic falls in the price of oil, its biggest export; rampant inflation; and sanctions against select businesses and individuals by Western states.

The scope of those sanctions looked to spread even further, as the European Union banned any investment in Crimea, which was annexed by Russia in March after a referendum, on Thursday.

German Chancellor Angela Merkel reaffirmed her commitment to what she said were "unavoidable" sanctions, in a speech in Germany on Thursday.

Putin said he believes the economy would adjust to lower oil prices, but added questions remained over how quickly the adjustment would take place.

He defended the slow progress of structural reform in Russia and the country's dependence on its energy sector, stating that when the economic situation improved, the government would be able to continue with reforms.

While investors had hoped that Putin would outline how his government plans to tackle these issues, he appeared to use the speech as an opportunity to reiterate what he sees as the wrongheadedness of the West's actions, and call once again on Russia's nationalistic fervor.

Putin also pledged to help support mortgage lending, which is likely to become a huge problem for Russian borrowers. The country's mortgage holders are facing rising repayments on their loans as interest rates soar, and the small proportion who have loans in foreign currency will suffer even more as the ruble devalues.

The ruble's depreciation hurts the country's wealthiest as well as ordinary borrowers. Putin, and more recently his Economy Minister Alexey Ulyukaev, have insisted that the government will not use controls on movement of funds out of the country to stop rich Russians moving their wealth abroad.

He claimed not to know how much he earns.

Putin also reiterated his wish to keep Russia's currency reserves (which Morgan Stanley have estimated at $416 billion) untouched. Selling off their U.S. dollars would be one way to bolster the price of the ruble.

"While there were plenty of contradictions in what Putin said, the general policy response will remain unchanged," Neil Shearing, chief emerging markets economist at Capital Economics, wrote in a research note.

"Capital controls remain a measure of last resort, and the first line of defence for the ruble will be continued tight monetary policy. Whatever happens, a deep recession now looms."

One bright spot for Western investors is the release from house arrest of Vladimir Yevtushenkov, chairman of Russian business conglomerate Sistema. His arrest and the seizure of Sistema's stake in oil company Bashneft by the Russia government had symbolized for many the difficulties of doing business in Russia.

Putin said he would meet Yevtushenkov soon, and also reiterated his confidence in Igor Sechin, chief executive of state-backed oil giant Rosneft, which sent shares in both companies soaring in Moscow. His apparent backing for Sistema to stay as a private company also helped restore faith in other Russian companies' shares.

On a lighter note, Putin reiterated his preference for Russian drink kvass over Coca-Cola. Asked about his love life by a journalist, Putin, who is separated from his wife said, like many a bachelor hassled by their friends, that everything was fine.

- By CNBC's Catherine Boyle and Holly Ellyatt