The Indonesian rupiah slipped to a two-year low on Wednesday as most Asian regional currencies fell after world oil prices set record highs, raising fears Asian economies dependent on oil imports could be hurt.
The rupiah lost more than two percent, falling to levels last traded in April 2002, as official campaigning for the July presidential poll began.
Dealers in Jakarta said Bank Indonesia sold US dollars to prop up the rupiah, only hours after governor Burhanuddin Abdullah said the weaker rupiah was a temporary phenomenon and there was no urgent need for the central bank to take drastic measures.
Later the governor said the central bank would absorb excess rupiah in the market through auctions of benchmark debt paper (SBIs) and by raising banks' minimum reserve requirements.
Minimum reserve requirements are the deposits banks have to maintain with the central bank.
Governor Burhanuddin Abdullah told reporters that with the policies - to be issued within two weeks - the bank expected to absorb 39-40 trillion rupiah from the market.
"The central bank intervention and then these announcements have put a floor under the rupiah for now," said a dealer at a foreign bank in Jakarta.
The dealer, however, said political worries during a lengthy Indonesian election process this year and uncertainty on interest rates would continue to weigh on the rupiah.
The central bank will be auctioning paper later on Wednesday and some dealers expect the rates to go up amid a weaker rupiah and rising inflation.
Elsewhere, higher oil prices raised doubts about the economic outlook of the oil-importing region. Analysts say higher energy costs could cut Asia's trade surpluses and hurt global growth, which would hit export-driven Asian economies.
Markets in Singapore and Thailand were closed for a holiday. They will reopen on Thursday.
The South Korean won and Taiwan dollar both fell by as much as half a percent, taking their cue from the Japanese yen. South Korea, Taiwan and Japan are among Asia's top oil importers.
NYMEX crude oil futures struck a fresh 21-year high on Wednesday and traders said the market may test $43 a barrel on rising fears of potential supply disruptions after a weekend attack in Saudi Arabia.
Militants took hostages in the kingdom's eastern city of Khobar where Western oil companies have offices and housing. Twenty two people were killed in the attack.
Oil markets fear that militant fighters may shift from soft targets to production and export facilities. The Philippine peso at one point, was down about a quarter of a percent, after hitting its highest in about a month at 55.565 per dollar on Tuesday.
Dealers in Manila said most currency players were not willing to push the peso higher until the official results of last month's presidential vote were announced.
Preliminary results show a narrow victory for incumbent Gloria Macapagal Arroyo.