The rouble hit a new record low on Thursday, falling as low as 40 to the euro as sliding oil prices and a looming recession took their toll.

It was the third time in four days that Russia's currency had been allowed to weaken by the country's central bank, and the eighth widening of the rouble's band against a euro/ dollar basket in just over a month. Economists said that the Government was carrying out a “hidden devaluation”. However, Igor Shuvalov, Russia's First Deputy Prime Minister and the head of the Government's anti-crisis task force, insisted that the rouble could recover soon.

This week's falls come as the Kremlin moves to take advantage of a rapidly weakening dollar rate versus the euro. The rouble has slid 18 per cent against the dollar, and 12 per cent against the basket, since summer. The Government has stemmed the fall at a cost of more than a quarter of the country's foreign reserves. Much more of these, at $430 billion (£290 billion) still the world's third-biggest reserves, could be used in coming months to further prop up the rouble.

Top officials, from Vladimir Putin, the Prime Minister, and President Medvedev down, have pledged that there will be no big devaluation. Such a move — which last happened in 1998, the year of Russia's previous financial meltdown, when millions of Russians had their savings wiped out - could be political suicide for officials putting their name to it.

“They can avoid a big devaluation if they choose to continue spending their reserves on the defence of the currency,” Kingsmill Bond, chief strategist for Troika Dialog, a Moscow investment bank, said.

Allowing a gradual devaluation could be “an expensive but not impossible solution”, he said, adding: “The much bigger issue is the weakness of domestic growth as corporations are damaged by an expensive currency and a lack of domestic credit.”

The dollar remains the currency to which most Russians' salaries are pegged, and in which most companies' debts are denominated. Ordinary Russians and businesses are bracing themselves for a possible sharp devaluation of the rouble in the new year. In a poll published yesterday, 47 per cent said that they feared that the economic crisis would be long-term, compared with 33 per cent two months ago.

As prices for Russia's Urals crude oil have plummeted from their dizzy heights of $140 per barrel this summer to below $40, the Government's huge tax revenues from oil are shrinking fast. This could leave a gaping hole in the country's budget, and force big government spending cuts next year. It is feared that hundreds of thousands of Russians could lose their jobs over the next few months as a wave of “temporary” layoffs become more permanent.

Natalia Orlova, chief economist of Alfa Bank in Moscow, said that the Government was pursuing a policy of “hidden devaluation” by allowing the rouble to fall against the euro, while keeping it steady versus the dollar.

Eugene Belin, head of fixed income for Citibank in Moscow, called the widening of the band against the euro “a very smart move”. Steady devaluation was a lesser evil than hurting economic growth by keeping the currency too high, Mr Belin said.

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