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EMERGING MARKETS-Rupiah steadies, stocks slide as Bank Indonesia holds fire

    * Graphic: World FX rates tmsnrt.rs/2egbfVh
    * Graphic: Foreign flows into Asian stocks tmsnrt.rs/3lKhL5I
    * Bank Indonesia keeps interest rates unchanged
    * Taiwan dollar eyes best day in nearly six months

    By Shashwat Awasthi
    Sept 17 (Reuters) - Indonesia's rupiah was flat while Jakarta's stock market hit session
lows on Thursday after the country's central bank as expected kept interest rates unchanged in
favour of maintaining stability in the currency.
    Bank Indonesia (BI) called the rupiah "fundamentally undervalued", saying there was
room for the currency to strengthen, while also assuring markets that its debt-sharing agreement
with the government was only for 2020.
    Nodding to BI in a list of several emerging markets, S&P Global said in a report this week
that developing world central banks could risk their reputations, sovereign credit ratings and
even full-blown economic crises if they continue to monetise government debt after the crisis.

    BI's decision to leave rates unchanged "shows that it is prioritising financial stability
over supporting the economy", said Gareth Leather, senior Asia economist at research firm
Capital Economics.
    "Our forecast is that the rupiah should start to stabilise over the coming months, but the
country's current account deficit means the rupiah is likely to remain more volatile than other
Asian currencies."
    Concerns over moves to change the central bank's mandate and institutional arrangements have
threatened local bond markets and the stability of the rupiah, prompting a series of
interventions by the central bank in recent weeks. The currency is down 6% this year.
    Officials have hinted that some of the proposed changes for the bank will fall by the
wayside, but investors remain nervous about ministers' potential influence over policymaking at
a time when it is underwriting government debt issues under coronavirus emergency measures.
    Stuart Ritson, an emerging market debt portfolio manager at Aviva Investors, said foreign
flows into Indonesian bonds had been "very lacklustre" since the coronavirus crisis.
    "Certainly, headlines like we've seen over the past few weeks which do question central bank
independence are likely to see investors be more cautious about allocating capital toward
Indonesia," Ritson said.
    A Reuters poll showed investors were short on the rupiah, scaling back bets just two weeks
after turning bullish for the first time since June.
    Most other emerging Asian currencies were lower as the dollar found support in Fed Chair
Jerome Powell's forecast that the world's largest economy would shrink less than feared this
year.
    Taiwan's dollar was a major outlier as it advanced for a sixth straight day and hit
its highest level since April 2018.
    The Bank of Japan also kept its monetary policy steady on Thursday and slightly upgraded its
view on the economy.
    Singapore's FTSE Strait Times Index climbed as much as 0.5% after
higher-than-expected August exports, before reversing course to join its peers in the red.
    
    HIGHLIGHTS:
    
    ** Indonesian 10-year benchmark yields are up 4.2 basis points at 6.957%
    ** Top losers on the Jakarta stock index include Argo Pantes down 6.94%, Protech
Mitra Perkasa down 6.91% and Inter Delta down 6.86%
    
    
   Asia stock indexes and currencies at 0805 GMT                                   
   COUNTRY      FX RIC    FX DAILY %    FX YTD %     INDEX   STOCKS DAILY %  STOCKS YTD %
    Japan                    +0.14        +3.65                  -0.67          -1.43
    China                    -0.16        +2.91                  -0.41           7.22
    India                    -0.24        -3.15                  -0.69          -5.29
  Indonesia                  +0.03        -6.34                  -0.40          -20.02
  Malaysia                   -0.22        -1.16                  -1.32          -4.89
 Philippines                 -0.17        +4.52                  -0.05          -23.95
   S.Korea                   +0.14        -1.53                  -1.22           9.49
  Singapore                  -0.10        -1.13                  -0.13          -22.37
   Taiwan                    -0.01        +2.72                  -0.80           7.30
  Thailand                   -0.19        -4.01                  -0.58          -18.60
 
 (Reporting by Shashwat Awasthi, Anushka Trivedi and Nikhil Kurian Nainan in Bengaluru; Editing
by Anil D'Silva)
  
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