Monetary tightening will continue during the remainder of 2011, following BI's decision on February 4th to raise its main policy 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 previous recent meetings BI had left the rate at 6.5%, its lowest level since it was introduced in 2005, owing to concerns about the effect that a widening interest rate differential with major global economies would have on capital inflows (given that rates in such countries are likely to remain low). But consumer price inflation accelerated to 7% year on year, a 21-month high, in January and inflation has remained above BI's 4-6% target range since November. These factors convinced the bank's governors that raising the BI rate had become essential. Although BI waited until early February before raising rates, it 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% from June 1st 2011, up from 1% at present. We expect the BI rate to average 7.3% in 2011 and 8.5% in 2012-15.