On Monday, the country’s currency fell 0.7 percent to 14.777 rupiahs to the dollar, it’s weakest level since the Asian financial crisis in 1997-98.
Despite weekend interventions from the central bank, it is still one of the worst-affected currencies in the emerging markets sell-off.
It has already fallen nine percent against the dollar so far this year.
The emerging markets panic has been triggered by the crisis-hit Turkish lira, which has plummeted 40 percent against the dollar so far this year alone as a diplomatic feud with the US continues.
According to a report from Reuters, Bank Indonesia said it will be intervening in the foreign exchange and bond markets.
Data from ratings agency Moody’s revealed Indonesia, the largest economy in Southeast Asia, has around 41 percent of government debt denominated in foreign exchanges and a further fall in the rupiah would make those more expensive to pay.
Vishnu Varathan, head of economics and strategy at Japanese financial services firm Mizuho Bank, told CNBC in an email: “The high foreign-ownership on bonds coupled with Indonesian corporates’ increased US dollar debt are also rendering the Indonesian rupiah prone to more weakness.
“If credit spreads rise further on emerging market risks and oil remains elevated ahead of Iran sanctions set to bite in November, the risks of breaching 15,000 is a clear and present danger.”
But Radhika Rao, economist at the Development Bank of Singapore (DBS), claimed any intervention from Bank Indonesia may be in vain.
He told CNBC: “Authorities have actively supported the foreign exchange and bond markets, during recent bouts of volatility.
“In the midst of a broader slide in regional currencies, intervention attempts help to smoothen the downdraft but it will be a challenge to reverse the direction.”
DBS chief investment officer for Asia Pacific, Tuan Huynh, warned in a recent report that Indonesia’s account deficit makes it vulnerable to a “funding crisis”.
He added in the report that the country’s deficit had increased to £1.5bn ($2bn) in July – the largest monthly deficit for five years.
Mr Huynh said: “The key triggers for any further rate hike would be a further strengthening of the USD or the widening of the current account deficit caused by strong domestic demand.”
But in a note last week, DBS warned in a note that they expect interest rates to be increased further as a way of controlling the volatile economy.
They said: “For now, markets see Indonesia working hard to maintain macroeconomic stability, for example, hiking rates more to fend off exchange rate volatility and keeping to fiscal consolidation.”