Hong Kong stocks slipped after policymakers raised the city’s key interest rate to a three-year high in lockstep with an expected Federal Reserve hike. Banks and property developers led losses on concerns the move will weigh on the economy. The Hang Seng Index dropped 0.2 per cent to 20,622.68 at the close of Thursday trading for a second day of decline. The Tech Index gained 0.4 per cent, while the Shanghai Composite Index added 0.2 per cent. Insurer AIA Group lost 0.9 per cent to HK$79.90 while China Merchants Bank slumped 2.1 per cent to HK$43.05. Developers Longfor Group and China Resources Land retreated by at least 1 per cent. Limiting losses, Xiaomi climbed 2.4 per cent to HK$13 and Galaxy Entertainment gained 3.8 per cent to HK$47.40. The Hong Kong Monetary Authority lifted its base rate by 75 basis points to 2.75 per cent immediately on Thursday, tracking a similar hike in the US to douse inflation. The move was preceded by a surge in local interbank rates, which have risen by 10-fold since the start of the year. Sell Hong Kong stocks when the likes of HSBC raise prime rates, historical data suggests “Higher interest rates will increase borrowing costs and pressure stock and property markets,” Robert Lee Wai-wang, chief executive of Grand Capital Holdings, said before the rate increase. “However, banks and brokers currently should also have sufficient liquidity to withstand any risks.” The Hang Seng Index has weakened 5.8 per cent in July, set for the worst performance since November. Sentiment soured this month as China’s embattled troubled property sector was dealt another blow, with frustrated homebuyers refusing to repay mortgages. Higher borrowing costs may crimp demand for credit and make home mortgages costlier, pressuring the local economy already on the brink of another recession. Hong Kong’s gross domestic product could shrink by as much as 1.6 per cent last quarter, analysts said, after contracting 4 per cent in the preceding three months. Interest rate increases in the US and other major markets globally will have an impact on Hong Kong’s economy and exports , Financial Secretary Paul Chan Mo-po said. HSBC, Standard Chartered and other commercial banks in the city may have to raise their prime rates as soon as in September, according to Tommy Ong at T.O. Associates, while Invesco predicted that could happen in the fourth quarter. Elsewhere, CK Asset Holdings rose 0.2 per cent to HK$55.75. The group confirmed on Thursday it has submitted a bid to buy China Evergrande Group ’s trophy head office building in Hong Kong. In Shanghai, Innovita Biological Technology soared 27 per cent to 33 yuan on its first day of trading. Major Asian markets rose, with Japanese stocks adding 0.4 per cent while South Korean and Australian equities rose 0.8 to 1 per cent.