* Rates in Hong Kong track U.S. ones, due to currency peg
* Banking and property shares jump on benign rate view
* Cbank urges banks to maintain high quality on loans (Adds stocks reaction, cbank comments)
By Donny Kwok and Saikat Chatterjee
HONG KONG, March 16 (Reuters) - Hong Kong’s central bank raised its benchmark interest rate by a quarter point for the second time in three months on Thursday, following a similar move by the U.S. Federal Reserve and said capital outflows will not pose challenges for the economy.
While the Fed’s move was widely anticipated, economists said the future path for tightening would be more gradual, sparking a rally in risky assets from stocks to emerging market currencies.
Norman Chan, the chief executive of the Hong Kong Monetary Authority, the territory’s de facto central bank, said he was not worried about capital outflows, as they would happen naturally as U.S. interest rates rise.
“In the past couple of years, $130 billion came into the financial system and that is kept in a separate pocket we hold,” Chan told a media gathering. “We have all the money in highly liquid form, such as U.S. Treasuries, that we hold ready for those who want U.S. dollars.”
Shares in sub-indexes of banking and property companies in Hong Kong jumped by more than a percentage point each in opening trades on Thursday, outperforming the broader stock market on the benign rate outlook.
The Hong Kong Monetary Authority on Thursday raised the base rate charged through its overnight discount window by 25 basis points to 1.25 percent. Hong Kong tracks U.S. rate moves as its currency is pegged to the U.S. dollar.
Including reinvested dividends, the broader Hong Kong stock market has outperformed a sub-index of property and finance companies since the last U.S. rate increase in December.
HKMA’s Chan also asked banks to continue upholding their high standards in examining applications for big loans from developers earmarking funds for bidding land for development.
The city’s economy has become more dependent on the mainland at a time when Beijing authorities say meeting a target of 6.5 percent growth this year won’t be easy.
More than three fourths of inbound tourists are from the mainland, a big source of revenue for local companies, and more than half of its trade is with China.
Hong Kong painted a slightly brighter outlook for the city last month, projecting its economy to expand between 2 to 3 percent in 2017, helped by stronger factors at home and the global economy.
Hong Kong’s central bank sets its base rate through a formula that is 50 basis points above the prevailing U.S. Fed Funds Target or the average of the five-day moving averages of the overnight and one-month HIBORs (Hong Kong Inter-bank Offered Rate). (Editing by Richard Borsuk and Randy Fabi)