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November 19, 2008

Indonesia central bank: No 'irrational' rupiah level
Indonesia's central bank will not let the rupiah hit "irrational" levels, Bank Indonesia's governor said on Tuesday, following a further depreciation of the currency.

Boediono's comments came after the rupiah hit a fresh 7-year low against the dollar on Tuesday, once again at the fore of declines in Asian currencies spurred by falling stock markets and increasing evidence pointing to a global recession.

"We will steer it towards a good and realistic level. We will not let the market make our exchange rate irrational," Reuters quoted Boediono as saying. He did not elaborate further.

The rupiah briefly fell 2.9 percent to 12,050 to the dollar, with some dealers expecting the currency to weaken towards 12,100 in the coming week due to market worries over foreign fund outflows from the country's financial market.

Indonesia imports a significant amount of basic necessities especially food. Failure to stabilise the rupiah, which has fallen 21 percent this year, could push up the cost of imported foods and put pressure on the country's balance of payments.

Bank Indonesia has been intervening in markets to defend its falling currency and it has also introduced a new measure on buying foreign exchange.

Earlier in the month, the central bank kept its benchmark interest rate BIPG unchanged at 9.5 percent, also to underpin the rupiah, even though it has kept the cost of borrowing relatively high.

But with growth risks likely to increase as the world downturn deepens, rate cuts are a matter of time, analysts said.

Southeast Asia's biggest economy expanded 6.11 percent in the third quarter, its weakest pace in more than a year, reflecting a slide in commodities prices as global demand deteriorates.

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