Indonesia said it will tighten rules on banks’ foreign-exchange holdings and overseas borrowing to cope with capital inflows that have pushed up inflation and strengthened the rupiah this year.

Bank Indonesia will also reintroduce a 30% cap on lenders’ short-term overseas borrowing to minimize the risk of sudden capital outflows, it said yesterday. Banks must set aside 5% of their total foreign-exchange holdings as reserves as of March 2011, from 1 percent currently. The reserve requirement will rise to 8 percent effective June.

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