"Today's change in rates marks the start of the normalization cycle for local interest rates and we believe Hong Kong is well prepared for the change", said Diana Cesar, HSBC's chief executive officer in Hong Kong.
ASIAN markets swung on Thursday as investors considered the prospect of more United States interest rate hikes and Donald Trump's latest broadside in his trade war with China.
Several other commercial banks in the territory semi-autonomous southern China should take example on HSBC and Standard Chartered, and raise their base rate, which implies an increase in the cost of credit that are backed.
The city's one-month interbank rate jumped the most since 2008 on Monday and Hong Kong's dollar - a currency on one of the world's tightest leashes - surged the most against the USA dollar in 15 years on Friday.
The last time the city's banks changed their prime rates was November 10, 2008, when they cut them by 25 basis points.More news: Kings, Suns Willing to Help Facilitate Jimmy Butler Trade
The two types of mortgage loans in Hong Kong are those who are tied to the interbank offered rate (Hibor), and those who are tied to the prime rate. The last hike was in March 2006.
Its chief executive Norman Chan warned the public Thursday to be "on high alert" over rates rises and to manage associated risks, adding that property and assets would be affected.
The Federal Reserve raised the benchmark interest rate on Wednesday for the third time this year in a widely anticipated decision, citing the strong U.S. economy and jobs market.
The Hong Kong Monetary Authority (HKMA) raised the base lending rate in lockstep with a widely expected move by the U.S. Federal Reserve overnight.
While the HKMA typically tracks the Fed in raising its rates, the city's commercial banks have up until now left their prime rates unchanged at decade-lows to remain competitive.More news: Mexico trade deal text to exclude Canada, irritating U.S. lawmakers
Higher rates threaten gains in home prices that have been on a bull run for most of the past 15 years. But they were expected to raise rates if the cost of capital rose further.
Hong Kong reversed early gains to end 0.4 per cent lower while Shanghai shed 0.5 per cent, Taipei gained 0.3 per cent and Sydney was flat.
"The conditions current global economic and financial environment full of uncertainties for Hong Kong", he said. HSBC's increase, which will take effect on September 28, is its first since March 2006.
HSBC's Leung said he did not expect the bank's 0.125 percentage point increase to have any impact on the mortgage default rate.More news: Lindsey Graham Goes Savagely Partisan in Defense of Phony Bipartisanship