Monetary tightening will continue for the remainder of the year, following the decision by BI's governors on February 4th to raise the main interest rate, the BI rate, by 25 basis points to 6.75%. The rate rise, the first since October 2008, signals the start of the process of "normalising" interest rates. In recent meetings the central bank had left the BI rate at 6.5%, the lowest level that the rate has reached since its introduction in 2005, owing to concerns about the effect that interest rate increases would have on capital inflows (given that interest rates in major economies are likely to remain low). But consumer price inflation accelerated to 7% year on year in January, a 21-month high, and inflation has remained above BI's 4-6% target range since November, convincing the governors that higher interest rates are essential. Although it waited until early February before raising interest rates, BI began to tighten monetary policy in September 2010, when it increased the commercial banking sector's primary rupiah reserve requirement to 8%, from 5% previously. It has also announced a rise in the banking sector's US dollar reserve requirement to 8% by June 1st, up from 1%. We expect the BI rate to average 7.3% in 2011 and 8.5% in 2012-15.