MNI INTERVIEW: PBOC May Target Capital Flow If Fed Hike: Huang

--Sharp, Sudden Yuan Break Above 7 vs USD 'Not Appropriate': Former PBOC Advisor

     BEIJING (MNI) - The People's Bank of China (PBOC) could tighten capital

controls to counter any impact on the yuan from a Federal Reserve rate hike

while keeping its own interest rates low, a former central bank advisor told MNI

in an interview.

     As China needs to both maintain growth and curb financial leverage, "any

big adjustment of interest rates won't be easy," Huang Yiping, a former member

of PBOC's Monetary Policy Committee, said Saturday on the sidelines of a China

Finance 40 Forum(CF40)conference.

     "The central bank needs to balance financial stability while preventing any

further economic slowdown," Huang added when asked about China's possible

response to an expected Fed rate hike at the end of this month. 

     The narrowing U.S.-China yield spread, in large part driven by Fed rate

hikes, can be controlled by enhanced management of cross-border capital flows,

said Huang, now chairman of CF40's academic committee and vice dean of the

National School of Development at Peking University.

     China has already taken measures to tighten foreign currency outflows, with

the State Administration of Foreign Exchange recently publishing 23 cases of

rule violations as a warning to the public. 

     On the outlook for the yuan, Huang said USDCNY at 7 marks an important

psychological threshold, so a sharp and sudden breakthrough of that level would

not be appropriate. "The market should be given time to prepare and adjust," he

said.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MT$$$$,MX$$$$,MGQ$$$]