The Indian rupee fell to an all-time low on Wednesday as likely outflows from local equities weighed on the currency, though the pressure was eased by the Reserve Bank of India's intervention.
The rupee hit a record low of 83.72 against the U.S. dollar in the final minutes of the session, eclipsing the previous record of 83.7150 hit on Tuesday.
It ended the day at 83.7175, also its weakest closing level on record and marginally lower than its close of 83.6875 in the previous session.
Dollar bids from at least two large U.S.-based foreign banks, likely on behalf of custodial clients, pressured the currency, a trader at a foreign bank said.
The benchmark BSE Sensex and the Nifty 50 equity indices ended the day lower by about 0.3% each.
Sentiment surrounding local equities has dampened after the government, in the budget on Tuesday, raised taxes on profits from equity investments and on equity derivatives trades.
Overseas investors sold over $350 million of Indian stocks, on a net basis, on Tuesday, per exchange data. They had invested nearly $5 billion this month before the budget was unveiled.
On Wednesday, the RBI's intervention helped limit the rupee's decline, traders said.
State-run banks "sold (dollars) heavily," early in the session and were spotted offering dollars in the latter half as well, a second trader at a foreign bank said.
Despite the recent pressure on the rupee, the RBI's routine interventions have kept volatility expectations in check.
The rupee's 1-month implied volatility is at 1.75%, hovering close to its lowest in nearly two decades.
"While we understand that the stability of currency is good, too much stability and not allowing market forces to function may result in imbalances building up in the longer term," said Ashhish Vaidya, managing director and treasurer, global financial markets at DBS Bank India.
The dollar index was largely steady at 104.5 while most Asian currencies weakened marginally.
