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Hong Kong's central bank raises base rate by 25 basis points
December 15, 2016 / 12:00 AM / in 7 months

Hong Kong's central bank raises base rate by 25 basis points

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A man looks at his phone in front of a panel displaying the benchmark Hang Seng Index during morning trading in Hong Kong, China, December 15, 2016.Tyrone Siu

HONG KONG (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.

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 has retreated to near previous highs in the second half of the year.

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 and Joyce Leung; Editing by Michael Perry

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