March 16, 2017 11:28 am JST

Hong Kong central bank raises interest rates after Fed move; shares watched

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 1.25 percent.

The move from Hong Kong's de facto central bank followed the U.S. Federal Reserve's decision to raise interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank's target.

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

Shares of banking and property companies will be in the spotlight in Hong Kong as the interest rate increase could raise concerns on the health of their balance sheets.

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.

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.

The Hong Kong 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).

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