Hong Kong's economy faces a 'double whammy' from the steep cycle of rising interest rates now under way, and the first sector to be hit will be property, analysts warn. The warnings followed statements from most of Hong Kong's major banks yesterday that they will lift their prime lending rates by 0.25 percentage points, to 5.5 per cent, from tomorrow. The increase comes just two weeks after lenders raised their prime rates from 5 per cent to 5.25 per cent, and bankers yesterday warned customers to expect a further increase before May 3 and several more rises later in the year. 'Hong Kong has historically been an interest-rate-sensitive economy, given the importance of housing, and this is negative for the housing market. I would argue that the peak of activity in terms of turnover and pricing power for property developers has passed,' Deutsche Bank chief economist Michael Spencer said. 'But my concern is that Asian central banks will not raise rates anything like Hong Kong - so it will be a double whammy for us on both the domestic and external front.' For depositors, the cycle will bring relief from the lowest returns on record. From tomorrow, most banks' Hong Kong dollar savings rates will double from 0.25 per cent to 0.5 per cent, with further increases likely. Hong Kong's biggest lender, HSBC, and subsidiary Hang Seng Bank did not raise rates yesterday, but are expected to do so soon. Confirmation of the widely telegraphed rates rise capped gains on the stock market. The Hang Seng Index ended the day up by just 22 points, or 0.16 per cent, at 13,513, and dealers warned that investor sentiment would be hurt by further rises in interest rates. 'Whenever rates rise the equity market falls. That is the trend because big investors count every cent, and every one-point rise in rates is important to them,' said Francis Lun, general manager of retail brokerage Fulbright Securities. 'When the big boys go, the small investor tends to follow - which means there will most likely be an outflow of funds from stocks.' But Hong Kong bankers did not believe the local economy or the property market would be unduly hurt, even though most agreed that the prime lending rate could go up by at least another full percentage point by the end of the year. 'I would expect to see US rates continue to rise and we would expect to see Hong Kong rates track those rises - if not at the same level, perhaps a little below that,' Standard Chartered Hong Kong chief executive officer Peter Sullivan said. 'But Hong Kong consumers are among the most experienced property investors in the world, and they would think that rates still remain pretty competitive.' Stanley Wong Yuen-fai, Industrial and Commercial Bank of China (Asia) deputy general manager, said the prime lending rate in Hong Kong could reach 6.5 per cent by the end of the year. That might dampen demand for loans, but only to a very small extent because both corporate borrowers and homebuyers recognised that on a historical basis, rates remained on the low side, he said.