UPDATE 1-Russia Kudrin: firms must cope with strong rouble

By Toni Vorobyova ST ANDREWS, Scotland, Nov 7 (Reuters) - Russian companies must get used to a more flexible exchange rate and cut costs to stay competitive in the face of the rouble's strength, Finance Minister Alexei Kudrin said on Saturday. "We are not seeking an appreciation of the rouble ... But a correct exchange rate is one that is determined by objective factors -- oil prices, capital inflows -- and not the action of the central bank," Kudrin told reporters. "Companies should be ready for this." The rouble has risen about 8 percent against a dollar-euro basket since early September, and over 10 percent versus the dollar, tracking a rally in oil prices. The Russian central bank has regularly intervened in the currency market to slow the rouble's rise as part of its policy to avoid big exchange rate swings in either direction, buying around $15 billion in October alone. But in a change from its policy during the pre-crisis economic boom it has not halted the rouble's rally altogether, allowing it to inch up in 5 kopeck steps for each $700 million of interventions. Analysts say this shows Russia is moving towards its aim of switching to inflation targeting and a free float by end-2012. Most officials have remained sanguine about the rally, with the currency having reclaimed only half of the depreciation seen at the peak of the crisis in late 2008-early 2009. They do admit that some industries could be hit by a strong rouble, which makes imports cheaper and makes it harder for the relatively undeveloped domestic industry to claim market share. But Kudrin -- a staunch fiscal hawk and advocate of a more competitive industry -- said the affected companies should not count on exchange rate help from the state. "Some companies, in competition with the global market, are inferior in terms of cost. That is a signal that costs should be cut," he said. "I think it is wrong to create hothouse conditions for some companies by artificially controlling the exchange rate." This means other emerging powers who are worried about the weak dollar should not necessarily count on vocal support from Russia at events like the G20 finance ministers' meeting, on the sidelines of which Kudrin was speaking. As well as boosting the rouble, the rally in oil prices has also helped Russia's resource-focused economy start to recover from its first recession in a decade. "I think a second wave of the crisis, a second recession are unlikely, at least in the next 1-1/2 to 2 years. But we must remain vigilant," Kudrin said. (Reporting by Toni Vorobyova; Editing by Mike Peacock) Keywords: G20 RUSSIA/CURRENCIES ([e-mail]; Tel: [phone], Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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