Energy-rich Azerbaijan, whose economy has been hit hard by falling oil prices, withdrew support Monday for its embattled currency and the manat plunged by nearly a third against the dollar.
The manat's plummet spurred jitters, with major retailers halting business in the ex-Soviet country and anxious consumers fearing for their future.
"The central bank took the decision to switch to a floating exchange rate for the national currency as of December 21," the regulator said in a statement.
It said the decision was taken because "falling oil prices and the continuing devaluation of partner countries' currencies has begun to negatively affect the Azerbaijani economy."
The manat was trading at 1.55 against the dollar on Monday, down 32.3 percent from Friday.
The country's central bank has spent more than half of its foreign currency reserves -- which it said had reached "critical levels" -- to support the manat, in free fall since the beginning of the year.
"I expect the manat to further devaluate," analyst Samir Aliyev told AFP. "The era of a stable manat has ended."
"The main problem is that the national currency's collapse will inevitably lead to higher inflation rates."
- Consumer anxiety -
Businesses in Azerbaijan have reacted nervously to the slump in the manat's value, with major retail chains shutting up shop Monday as prices of imported goods were expected to rise sharply.
"We closed today all our shops to revise prices upwards," a manager at Azerbaijan's largest electronics retailer told AFP on condition of anonymity.
Others expressed fears that the devaluation would threaten the banking sector's stability and lead to loan defaults as a majority of mortgages and loans in Azerbaijan are dollar-denominated.
"I don't know if I will be able to repay my mortgage which I have taken out in dollars," Arif Gasanov, a 40-year-old Baku resident, told AFP.
"After the manat collapsed I'll have to pay to my bank much more than expected, much more than I can afford."
Fitch said Azerbaijan's move would ease the oil shock's fiscal impact but is likely to hit growth and hurt the banking sector.
"In the medium term, the devaluation will have a negative impact on banks' asset quality, as loan dollarisation is high," the rating agency said in a statement.
- Regional implications -
Azerbaijan's decision came after the energy-rich Central Asian nation of Kazakhstan abandoned its currency band for a free-floating exchange earlier this year.
Analysts said the move would not affect the Russian ruble but would negatively impact the majority of regional currencies.
"The move can be considered to be neutral for Russia: the weak ruble, in addition to low oil prices, was itself the trigger for Azerbaijan's currency move," said Oleg Kouzmin, an economist with Renaissance Capital.
He described the prospects for Kazakhstan's tenge as "slightly negative," adding that the Georgian lari -- which has lost nearly 45 percent of its value against the dollar since November 2014 -- is expected to be most affected.
Energy exports constitute up to three quarters of Azerbaijan's state revenues, making the Caucasus country's economy highly dependent on global oil prices.
The Caspian nation in February abandoned its dollar peg and switched to a dollar-and-euro basket and also devalued the manat by more than 33 percent.
The International Monetary Fund said in a forecast earlier this year that Azerbaijan's once booming economy had been expected to grow by just 2.5 percent in 2016 compared with the already modest 4-percent growth rate this year.
Oil prices extended losses Monday, with Brent at one point sinking to $36.09 a barrel -- its weakest since July 2004.