The Indian rupee plummeted to a low of 68.67 to the dollar, nearer to a record low of 68.85 hit in August 2013 and the lowest level in over two-and-a-half years, in early trade today helped by a steady demand for the US currency. The dollar also firmed up against most Asian currencies.
The record lows against the dollar forced the Reserve Bank of India (RBI) to intervene to stem further falls.
Traders said the RBI was seen selling dollars via state-owned banks around 68.61 a dollar to rein in the currency's fall.
On Tuesday, the rupee was trading at 68.5750/5800 a dollar, after falling to 68.6250 in early trade, its weakest level since 28 August 2013, when it had touched a record low of 68.85 to the dollar. The rupee had closed at 68.3725/68.3825 per dollar on Tuesday.
Forex dealers said there was sustained demand for dollar from foreign funds and importers that pushed up dollar value and weighed on rupee sentiment. Dollar's strength against some other currencies also weighed on the rupee, they added.
Foreign investors have pulled back $2.2 billion from India's debt and equity markets in the first two months of 2016, emerging net sellers, after they invested a net $12.2 billion in 2015.
Traders expect the rupee to soon breach the record low, as currency market volatility increased, with one-month non-deliverable forward contracts already touching 69 a dollar.
Analysts expect India's improved economic fundamentals and foreign exchange reserves of near a record $355 billion could help reduce some of the concerns.
RBI governor Raghuram Rajan, had in September said India would be "an island of relative calm in an ocean of turmoil" and has touted the country's lower inflation and higher growth than other economies. But that is yet to be proved. Rajan, who won his first currency defence may not also succeed this time around in reining in the rupee fall.
RBI is yet to effectively respond to falling currency prices. Rajan has already indicated the RBI will step in to ease volatility in the rupee but would not manage exchange rates.