Other Asian currencies were slightly weaker, mirroring moves in the Japanese yen ahead of an anticipated rise in US interest rates.
The rupiah fell to around 10,190 per dollar, a 0.7 percent drop from Monday's closing levels and its weakest since October 14, after the statistics bureau said the consumer price index rose 17.9 percent in October from a year earlier.
The inflation rate, which topped market forecasts and was the highest rate since June 1999, reflected the impact of sharp increases in domestic fuel prices last month. Fuel prices were raised by an average 126 percent to cut the cost of subsidies.
But the currency bounced back after the central bank raised its benchmark one-month rate by 125 basis points to 12.25 percent, when markets had expected a 100 basis point rise.
"The market's generally viewing the move as quite positive with regard to yield for the rupiah, but I am slightly less optimistic," said Craig Chan, a currency strategist with the Royal Bank of Scotland.
"Real interest rates have basically collapsed, and the risk is that the market could demand a higher yield ahead," he said.
But inflation levels could ease after the spurt in October and the central bank was likely to keep raising rates, he said.
Richard Yetsenga of HSBC said growth could slow down early in 2006 and the rupiah was at risk of falling.
"The positive that is emerging is the policy authorities are showing a willingness to tighten in response to data surprises, rather than following the Q3 policy of waiting for the market to signal that a shift in policy is needed.
"That being said, with the inflation shock being larger than expected, and higher interest rates, fuel prices and the Bali bombings likely to squeeze domestic growth, rate hikes will become increasingly difficult to deliver," he wrote.
Elsewhere, the yen weakened to a two-year low of 116.68 per dollar early on Tuesday as markets waited on a likely 12th US interest rate rise since June 2004. The Federal Reserve is expected to raise its federal funds rate by 25 basis points to 4.0 percent after its meeting later in the day. Asian currencies were less affected.
The Korean won fell to 1,042 from levels near 1,040 on Monday. However, it bounced off a 7-year high of 8.92 won per yen after Korean authorities said they were watching the cross rate.
Trading volumes were low with markets closed for a holiday in Singapore, the Philippines, Malaysia and India.
The Singapore dollar was about 0.2 percent weaker and quoted around 1.6940/50 per US dollar.