December 14, 2016 / 11:57 PM / 9 months ago

CORRECTED-UPDATE 2-Hong Kong's central bank raises base rate by 25 basis points

(Corrects name of bank to Bank of East Asia in 8th paragraph)

* Rate hike comes amid uncertain time for HK’s economy

* Rising property prices, slowing retail and tourism sectors drag

* IMF expects growth in Hong Kong to rise to 1.9 percent next year

HONG KONG, Dec 15 (Reuters) - The Hong Kong Monetary Authority on Thursday raised the base rate charged through its overnight discount window by 25 basis points to 1 percentage point.

The move from Hong Kong’s de facto central bank followed the U.S. Federal Reserve’s decision to raise the benchmark federal funds rate to a range of 0.50 percent and 0.75 percent on Wednesday.

Hong Kong tracks U.S. rate moves as its currency is pegged to the U.S. dollars.

The monetary authority 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)

While Hong Kong has successfully weathered previous U.S. rate hikes, the latest increase comes at an increasingly uncertain time for the city as it grapples with a slowing Chinese economy, a struggling retail and tourism sector and soaring property prices.

Norman Chan, chief executive of Hong Kong’s monetary authority told local media on Thursday there remained uncertainty in the pace of normalisation of U.S. interest rates.

“The inflation rate of Hong Kong currency could be affected by the amount of capital outflow, the development of the international market and other related factors.”

Paul Tang, chief economist at Bank of East Asia said the impact would be most noticable on the local property market which has been buoyed by a low interest rate and limited other channels for investment.

The IMF said in a report last month it expects growth in Hong Kong to rise to 1.9 percent next year from an estimated 1.5 percent this year but cautioned against stretched property valuations and stresses from exposure in mainland China.

Hong Kong’s housing prices, which are among the most expensive in the world, had cooled since late 2015 but in the second half of this year returned back to near previous highs.

Should interest rates rise faster than expected the IMF said “there is a risk to the real economy from an adverse spiral of negative wealth effects, lower collateral values, slower credit growth, and weaker household and corporate spending.”

Reporting by Farah Master, Joyce Leung, Katy Wong and Gabriel Yiu; Editing by Michael Perry and Simon Cameron-Moore

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