The Bank of Russia on Monday said that gross domestic product will probably stagnate in 2015, highlighting the damage wrought by a slump in oil prices and international measures linked to the conflict in Ukraine. Governor Elvira Nabiullina said the ruble’s slide has gone too far and pledged to limit local-currency funding to ward off speculators.

It means the central bank “is facing the true reality,” said Vladimir Miklashevsky, an economist at Danske Bank A/S in Helsinki. “It looks like wishful thinking is over for now.”

Accused of stoking the conflict in Ukraine, President Vladimir Putin is struggling to shield the economy, which is growing at the slowest pace since a 2009 recession. The ruble has depreciated to record levels, while the Bank of Russia raised its net capital outflow forecast to $128 billion this year, double the $61 billion it reported for 2013.

The central bank cut the growth forecast in its main outlook for 2015 to zero and pushed back its estimate for meeting an inflation target of 4 percent by one year from 2016, according to the revisions published today.

Putin Response

It forecast that sanctions will last through 2017 and oil will average $95 a barrel, compared with an estimate of $102 this year. Benchmark Urals crude was trading at $82.13 on Nov. 7, according to Alexander Sakovich, a Finance Ministry adviser.

Putin, in Beijing for a regional summit, played down the ruble’s decline, saying it was “absolutely not connected” to the performance of the Russian economy. He said at a meeting with International Monetary Fund chief Christine Lagarde that he hoped the central bank’s actions would “normalize” the currency market and “punish speculators.”

The currency rallied 2.1 percent to 45.6415 per dollar by 7:14 p.m. in Moscow, the biggest advance since Oct. 30. It had its worst week in at least 11 years last week, falling 7.8 percent against the dollar in the biggest drop among 24 developing countries monitored by Bloomberg.

The central bank, which said last week it was prepared to increase currency interventions “at any moment” to ward off speculators, may adopt temporary limits on ruble liquidity, Nabiullina said on Rossiya 24 television today.

Bank of Russia abolished its predictable intervention policy on Nov. 5. Two days later, it released a statement saying it was prepared to increase currency interventions “at any moment” as signs of “feverish” demand for dollars and euros entailed a risk to financial stability.

Free Float

Monday, it took that policy change further by fully eliminating the mechanism used for regular interventions and moving the exchange rate closer to a free float.

“In the short term, it will have an impact on inflation, deepen the economic troubles and push the economy into recession,” Lilit Gevorgyan, senior economist at IHS Global Insight, said by phone from London. “On the other hand, a weaker ruble is good for Russian exporters and also could make the currency more resilient to future shocks.”

Inflation prompted the central bank to raise the benchmark rate four times this year, to 9.5 percent in October from 5.5 percent in February. Foreign-currency reserves shrank by a fifth since last year’s peak to $428.6 billion on Oct. 31.

The latest outbreak of fighting in Ukraine has stoked concern that the U.S. and its allies will toughen sanctions.

Digesting Issues

Since the central bank published its outlook in September, policy makers have “digested” many issues, said Neil Shearing, chief emerging-markets economist at Capital Economics Ltd.

“Sanctions is one, the ruble crisis is another, inflation of course, and the accelerated move toward a free float,” he said by telephone from London. “The effect will be deeper” from sanctions than the central bank earlier assumed, he said.

The central bank has struggled to stem the ruble’s decline as fighting flares anew in Ukraine and crude oil trades near a four-year low. Ukraine says Russia is stepping up efforts to reinforce rebels with arms and supplies. Sporadic fire was heard throughout last night in Donetsk, the biggest city in the combat zone, according to the local council.

U.S. and European Union sanctions have limited access to capital markets for some Russian companies, spurred inflation and increased capital flight, pushing the economy to the brink of recession. Russia banned some food imports from the U.S., the EU and some allies in retaliation.

There’s a 70 percent chance of a recession in the next 12 months, according to the median estimate of 27 economists in a Bloomberg survey. That’s the highest since Bloomberg started tracking the figure two years ago, up from 60 percent last month. The government estimates the economy will expand 1.2 percent next year after a 0.5 percent increase in 2014.

“The things that are happening to the ruble show the status of our undiversified economy, which mainly relies on energy exports,” said Igor Yurgens, head of the Moscow-based Institute for Modern Development, or INSOR. “This can’t be changed much with monetary policy.”