The Cen­tral Bank on Fri­day in­creased the Re­po rate by an­oth­er 0.25 per cent, sig­nalling that the prime lend­ing rates of com­mer­cial banks is like­ly to go up even fur­ther in the near fu­ture.

In its mon­e­tary pol­i­cy an­nounced, the Cen­tral Bank at­trib­uted its de­ci­sion to the pos­si­bil­i­ty that its coun­ter­part in the US could be­gin rais­ing in­ter­est rates, an an­tic­i­pa­tion of high­er lo­cal in­fla­tion and the pos­si­bil­i­ty that pace of growth in the do­mes­tic econ­o­my could speed up in the next few months.

Fol­low­ing is the Cen­tral Bank state­ment in full:

At its Ju­ly 2015 meet­ing, Cen­tral Bank's Mon­e­tary Pol­i­cy Com­mit­tee (MPC) agreed to raise the 'Re­po' rate for a sixth con­sec­u­tive time by 25 ba­sis points to 4.25 per cent. The MPC based its de­ci­sion on three fac­tors:

�2 The first and most in­flu­en­tial fac­tor was re­cent for­ward guid­ance by the US Fed on the start of nor­mal­iza­tion of US mon­e­tary pol­i­cy;

�2 The sec­ond fac­tor was the po­ten­tial for do­mes­tic core in­fla­tion­ary pres­sures to pick up over the next few months;

�2 The third fac­tor up­on which the MPC de­lib­er­at­ed was weak­er-than-an­tic­i­pat­ed growth in the non-en­er­gy sec­tor in the first half of 2015.

Since the pre­vi­ous meet­ing of the MPC, un­cer­tain­ty re­lat­ed to the Greek debt cri­sis and the sharp cor­rec­tion in Chi­nese eq­ui­ty mar­kets dom­i­nat­ed sen­ti­ment in glob­al fi­nan­cial mar­kets. Even though near term risks from these events ap­pear to have dis­si­pat­ed some­what for now, risks as­so­ci­at­ed with the tim­ing of the first in­crease in the US Fed funds rate still per­sist. In her mid-Ju­ly 2015 tes­ti­mo­ny to Con­gress, US Fed Chair­woman Janet Yellen re­it­er­at­ed the Fed re­mains on track to raise rates this year, as long as the US econ­o­my evolves as ex­pect­ed.

At its Ju­ly 28-29th meet­ing, the FOMC hint­ed the US la­bor mar­ket is reach­ing a po­si­tion where a rate hike could be pos­si­ble this year.

Over the past few months, im­prov­ing U.S. eco­nom­ic con­di­tions and ris­ing ex­pec­ta­tions for a Fed rate in­crease have led to in­creas­ing yields on the bench­mark 10-year US Trea­sury. As a re­sult, the in­ter­est rate dif­fer­en­tial be­tween TT–US ten-year Trea­suries nar­rowed sub­stan­tial­ly to 69 ba­sis points at the end of Ju­ly 2015 from 82 ba­sis points at the end of May 2015. High­er do­mes­tic rates are nec­es­sary to en­hance yields of TT$ in­stru­ments to mit­i­gate po­ten­tial cap­i­tal out­flows.

Lo­cal­ly, ris­ing in­fla­tion­ary pres­sures re­main a con­cern for the MPC. Head­line in­fla­tion held steady at just over 5.5 per cent in June 2015, while core in­fla­tion slowed mar­gin­al­ly to just be­low 2 per­cent. How­ev­er, the MPC ex­pects in­fla­tion­ary pres­sures to pick up in the re­main­ing months of 2015 due to a num­ber of fac­tors:

�2 Food in­fla­tion ac­cel­er­at­ed for the first time in 2015 spurred by ris­ing in­put costs (specif­i­cal­ly poul­try) and falling sup­ply as­so­ci­at­ed with the out­break of a pest in the Do­mini­can Re­pub­lic, a ma­jor source mar­ket for fruits and veg­eta­bles. In June 2015, food in­fla­tion rose to 9.7 per cent. The ad­vent of the rainy sea­son rais­es the pos­si­bil­i­ty of flood­ing and may lead to ad­di­tion­al dis­rup­tions to do­mes­tic agri­cul­tur­al sup­ply, fur­ther push­ing up food in­fla­tion, which dri­ves head­line in­fla­tion.

�2 Con­sumer cred­it con­tin­ues to grow at a fair­ly strong pace, in­creas­ing by 7.5 per cent in May 2015. Re­cent­ly con­clud­ed pub­lic sec­tor wage agree­ments are ex­pect­ed to lift con­sumer spend­ing and in­fla­tion­ary pres­sures.

�2 Cen­tral Gov­ern­ment main­tained an ex­pan­sion­ary fis­cal stance in the first eight months of FY2015. Cap­i­tal ex­pen­di­ture, in par­tic­u­lar, in­creased by near­ly 9.5 per­cent due to a pick-up in the pace of project im­ple­men­ta­tion as well as the set­tle­ment of some out­stand­ing com­mit­ments.

The MPC ex­pects pub­lic spend­ing to ramp up in the re­main­ing four months of fis­cal 2015, boost­ed by high­er pub­lic sec­tor wages and on­go­ing cap­i­tal in­fra­struc­ture projects ahead of the gen­er­al elec­tions.

The Re­po rate in­creased by 150 ba­sis points since Sep­tem­ber 2014, but this is still be­low its longer term av­er­age. The MPC, there­fore, views the mon­e­tary pol­i­cy stance as sup­port­ive to eco­nom­ic growth. De­spite slow­er -than- ex­pect­ed- growth in the non-en­er­gy sec­tor in the first half of 2015, the MPC an­tic­i­pates a re­spectable per­for­mance in the non-en­er­gy sec­tor in the sec­ond half of 2015.

With liq­uid­i­ty lev­els falling to a dai­ly av­er­age of $3.2 bil­lion over the past three months (May�Ju­ly 2015), the MPC agreed to con­tin­ue with an ag­gres­sive pro­gramme to ab­sorb ex­cess liq­uid­i­ty and strength­en the im­pact of high­er in­ter­est rates through­out the fi­nan­cial sys­tem. Com­mer­cial banks' me­di­an prime lend­ing rate in­creased to 8.25 per cent in Ju­ly 2015 from 8 per cent in May 2015. Com­mer­cial banks are ex­pect­ed to fur­ther in­crease their in­ter­est rates in com­ing months. The next Mon­e­tary Pol­i­cy An­nounce­ment is sched­uled for Sep­tem­ber 25th 2015.