HONG KONG (Reuters) - Two of Hong Kong’s biggest banks on Thursday cut their key benchmark rates in the city, their largest market, which is bracing for its first recession since the global financial crisis following months of protests.

HSBC 0005.HKHSBA.L trimmed its best lending rate, also known as the 'prime' rate, by 12.5 basis points to 5.125%. It was the first cut since 2008.

Standard Chartered STAN.L2888.HK reduced its best rate to 5.25% from 5.375%.

Earlier on Thursday, the Hong Kong Monetary Authority (HKMA)chopped its policy rate by 25 basis points, tracking the Federal Reserve as obligated to by Hong Kong’s currency peg with the greenback.

Falling benchmark rates in Hong Kong and the United States will “make the operating environment for banks like HSBC more challenging in the future,” George Leung, an advisor at the lender, told reporters on Thursday.

On Monday, HSBC dropped its 2020 profit target, reported an 18% fall in pretax profits for July-September, and warned of a costly restructuring ahead.

Leung said that he hoped that HSBC’s lending rate cut would bring some “relief to customers, and maybe a little bit (of) sunshine to the gloomy economic outlook”.

In Hong Kong, commercial banks do not always follow the central bank, and adjusting the prime lending rate will affect mortgages in the city, one of the least affordable housing markets globally.

StanChart on Wednesday warned of a darker economic outlook even as it posted a 16% growth in quarterly profit.

CALLS FOR PRUDENCE

Announcing the policy rate cut, the head of the HKMA called on individuals to manage financial risks amid recession fears.

Eddie Yue, HKMA chief executive, told reporters that Hong Kong’s economy was facing “very large” downward pressure, partly because of “some local factors”.

The city’s embattled leader, Carrie Lam, said on Tuesday she expects the economy to contract for the full 2019 year, with the protests hampering business and a Sino-U.S. trade war taking a toll on factory activity.

Official estimates of third-quarter growth for Hong Kong will be announced later on Thursday.

Despite the social unrest, Yue said there had been “no obvious outflows” from the Hong Kong banking system, adding that Hong Kong Dollar deposits rose 0.6% in September.

HKMA earlier this month cut the amount of cash that banks must keep as reserves, releasing an extra HK$200-300 billion ($25.50-38.24 billion) into the broader economy.

It also called nine major Hong Kong banks together to agree on measures to support small and medium enterprises in the city.