Most Hong Kong banks raised their lending and savings rates Monday with market watchers expecting more rate hikes in coming months.

"Fortunately Hong Kong is now on the track to recovery and salaries are going up so the effect of rising rates at the moment will not be serious," said Daniel Chan, senior investment strategist at DBS Bank.

Standard Chartered Bank and Bank of East Asia both announced they were raising their prime lending rates and savings rates by 25 basis points each to 5.5 percent and 0.5 percent, respectively.

DBS Bank, CITIC Ka Wah Bank and Wing Hang Bank also raised their prime lending and savings rates by a quarter percentage point.

The rate hikes become effective Wednesday after a public holiday Tuesday. HSBC Holdings, the territory's biggest bank, its subsidiary Hang Seng Bank Ltd. and Bank of China Hong Kong (Holdings) all kept prime and savings rates unchanged. However, HSBC and Bank of China mortgage rates went up Monday.

For banks that raised prime lending and savings rates, it was their second move in less than three weeks, reflecting rising interbank rates after a recent wane in fund flows.

Financial markets are bracing for another interest rate rise in early May when the U.S. Federal Reserve is expected to increase the Federal Funds rate by at least another 25 basis points.

Hong Kong tends to track U.S. monetary policy because of its currency peg to the U.S. dollar although local banks ignored rate rises in the United States late last year and early this year as heavy fund flows into the territory boosted liquidity.

Expectations for higher borrowing costs has put pressure on the Hong Kong stock market recently but analysts did not expect much impact on consumption, which would be offset by wage rises.

A number of companies have announced they would raise pay this year for the first time in four years as economic recovery had boosted corporate profits.

The economy grew by 8.1 percent last year and is poised for a further 4.5-5.5 percent expansion this year, according to the Hong Kong SAR Government.

The property market is also expected to continue its recovery after prices rebounded by more than a third last year although higher rates could slow activity.

Joseph Yam, chief executive of the Hong Kong Monetary Authority (HKMA), said last week that tighter monetary policy was appropriate as it would reduce the likelihood of an economic bubble emerging.

"The current monetary policy stance of the United States is entirely appropriate for Hong Kong, if our economic recovery is to be sustainable and the probability of another destabilizing bubble reduced," Yam wrote in a weekly column published on the HKMA��s Web site.

Source: Shenzhen Daily-Agencies