JAKARTA Indonesia President Joko Widodo said on Tuesday the rupiah's recent depreciation rate against the dollar was still "safe" for Southeast Asia's largest economy and its inflation targets and that his government was drafting tax incentives to boost growth.

Speaking at a seminar attended by investors, Jokowi, as the president is popularly known, warned of a potential for oil prices to soar due to the escalating conflict in the Middle East and capital outflows linked to U.S. monetary tightening, which could affect Indonesia's economy.

"If we see the percentage of the depreciation of our currency, it's still safe for the real sector, safe for the financial sector, as well as for inflation," Jokowi said.

The rupiah has dropped by as much as 4.7% from its last peak in early September, coming under pressure amid investors' risk-off sentiments.

On Tuesday the currency strengthened as much as 0.66% to trade at 15,825 against the U.S. dollar, but continued to trade near its weakest levels since 2020.

"We have to be calculative and prepare for the long run," the president said, adding that his state budget still has endurance to withstand shocks until 2024 with his finance minister still holding 616 trillion rupiah ($38.84 billion) in cash as of Oct. 13.

Jokowi said the government is also preparing tax incentives for the property sector, which may include a removal of value-added tax for house purchases.

Finance Minister Sri Mulyani Indrawati said late on Monday the government would come up with policy packages aimed at keeping inflation low, protecting people's purchasing power and supporting economic growth.

Indonesia's central bank last week unexpectedly raised interest rates to arrest the fall in the rupiah's exchange rate, with some economists saying more hikes are likely if the currency continues to fall.

The September headline inflation rate was 2.28%, within Bank Indonesia's target range of 2% to 4%.

($1 = 15,860.0000 rupiah)

(Reporting by Ananda Teresia, Gayatri Suroyo and Fransiska Nangoy; Editing by Kanupriya Kapoor and Muralikumar Anantharaman)