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The ruble has been tanking and dropped to a record low of RUB35 to the dollar on January 29, sparking fears of another controlled devaluation.

The problems are both external and internal. Emerging markets around the world have seen their currencies fall hard in the last week as part of a general sell off and Russia's ruble was no exception. The Turkish and South African central banks have hiked interest rates dramatically in the last days to halt the selling and analysts believe they have nipped the fall in the bud.

Internally the Russian financial authorities seem to have decided that a cheaper ruble will prove an economic stimulant. The Central Bank of Russia has been reducing its interventions and the ruble actually broke out of its trading band this week, despite the CBR expanding the range by another 5 kopeks this week.

This greater freedom of the ruble was always the plan and the end of the trading band was planned for this year. However, the Finance Ministry suggested this week that the nixing of the band may be delayed due to the high volatility on the markets.

"Following a rather positive start to the day, when the ruble benefited from the support provided to EM by Turkey's significant rate hike, market sentiment deteriorated after 2pm," Alfa Bank said in a note. "A sharp increase in demand for foreign currency led to a drop in the ruble exchange rate to RUB35+/$, closing at RUB41 to the basket (exceeding the CBR's RUB40.70 basket corridor border). As a result, the CBR could possibly have sold up to $2bn yesterday."

The CBR has sold around $6bn year to date, suggesting that the market exchange rate remains deviated from the fundamental value (now around 37RUB/$). "An article in Vedomosti suggests that the government is nervous about the forex market. A number of officials initially attributed the situation to an increase in ruble volatility; however, some officials now suggest that the CBR should postpone introducing the ruble free-float set for 2015," says Alfa's chief economist Natalia Orlova.

The weakness of the ruble has also hit the bond markets, sending the long end of the OFZ, Russia's main sovereign bond, up. "The OFZ curve has steepened to a record level in the last 52 weeks, driven by the sell-off at the long end. We believe that this would be a good moment to gradually increase positions in the long-term notes for a short-term bounce," says VTB Capital.

The bank goes on to list the main causes of the ruble weakness, before saying the selling has been overdone. "In our view, RUB's underperformance was driven by an unfortunate combination of factors: A weak start of the year for EM FX reignited concerns about Russia's reduced C/A. The CBR continued to cut its presence in the FX market, having abandoned the mechanism of target interventions. Meanwhile, in 2013, the volume of CBR interventions was almost equal to the size of the C/A surplus."

Furthermore, households started converting ruble savings into FX deposits, and this is likely to be reflected in banking statistics in the next couple of months.

The future of the ruble depends on the economy's performance in 2014. Last year was Russia's annus horribilis, with 1.4% growth for the whole year. However, as the global economy inches back toward normality the outlook this year is much better with a consensus forecast for about 3% growth.

"At current levels, we believe that [the ruble] was pushed too low, because, in particular, investors would have faced margin calls at some point. According to our model, which plots RUB REER against C/A adjusted for changes in terms of trade, we see fair USD/RUB in the area of 33.50 at the end of 1Q14, while we maintain our 35.0 USD/RUB forecast for the end of the year," VTB Capital concludes.