The BoB aims to bring inflation within its medium-term target range, currently set at 3-6%, although it does take account of the need to support domestic demand. Inflationary pressure had been muted in the third quarter of 2010 but the consumer price index has risen for two successive months and risks of further increases have also strengthened, including the unresolved negotiations over civil service salaries. This may pose a problem of policy credibility for the central bank, which had surprisingly cut the benchmark bank rate from 10% to 9.5% at the December meeting of its monetary policy committee, expressing confidence in its projection that inflation would come back within the target range around the middle of 2011. Some easing of headline inflation can be expected in the coming months as the impact of the increase in VAT in April 2010 falls away but the BoB has revised its projection for inflation to return within the target range during the second quarter of 2012, and we forecast that interest rates will rise by 50 basis points in both 2011 and 2012.