Indonesia's rupiah dropped to a 17-year low against the dollar on Thursday, pressured by slowing economic growth and high inflation in Southeast Asia's largest economy.
The rupiah fell 0.4 percent to 13,271 against the dollar, the weakest level since August 1998 when Indonesia was in the depths of a financial crisis that led to the ouster of autocratic leader Suharto.
The central bank earlier on Thursday said it stood ready to intervene in the foreign exchange and bond markets to ensure stability.
"Bank Indonesia will monitor and will always be in the market to calm fluctuations in the exchange rate and the bond prices," Peter Jacobs, the spokesman said, adding that the rupiah had weakened along with other Southeast Asian currencies as the U.S. dollar has firmed.
The rupiah is the worst performer among emerging Asian economies so far this year, having lost more than 6 percent.
The yield on 10-year bonds, which has been rising since Friday, was at 8.325 percent, the highest so far this year.
Over the past few months, the central bank has taken several steps aimed at deepening the Indonesian currency market and stabilising the rupiah, including relaxing rules on foreign exchange transactions and setting hedging rules for Indonesian companies.
A ban of dollar usage for all local transactions will take effect on July 1.
But the measures have done little to halt the slide in a currency weighed down by Indonesia's weakest economic growth since 2009 and the highest inflation since December.
"It's not a pretty place to be; sandwiched between disappointing growth and exports, a weakening stock market, and heading into a possible U.S. rate hike later this year," said Philip Wee, senior currency economist at DBS, who believes the rupiah could weaken to around 13,660 by the end of this year.
When the rupiah tumbled in March, the central bank said the currency was moving towards a "new normal" and urged investors not to panic.
Analysts believe Bank Indonesia will not battle too hard to prop up the currency, but instead intervene only to prevent major volatility.
"We think Bank Indonesia is more open to orderly and gradual depreciation in the IDR over time than many people think," said Santitarn Sathirathai, an economist with Credit Suisse.
"After all, BI has noted a few times that a weaker currency could help cut imports, and boost manufacturing exports, supporting the rebalancing of the economy."
By Fransiska Nangoy and Gayatri Suroyo
Additional reporting by Nicholas Owen and Hidayat Setiaji; Writing by Randy Fabi; Editing by Kim Coghill and Simon Cameron-Moore
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