* Rupee hits record low of 68.8650; ends at 68.73
* Surpasses previous low of 68.85 hit in Aug 2013
* Dollar rally, demonetisation drive hit rupee
* But India seen better placed to withstand outflows
(Updates rupee levels; adds govt reaction, quotes, details)
By Savio Shetty and Rafael Nam
MUMBAI, Nov 24 The Indian rupee fell to a record
low of 68.8650 on Thursday, pressured by a rallying U.S.
dollar, capital outflows from emerging markets, and worries
about the country's demonetisation drive.
Despite repeated interventions by the central bank to slow
the slide, the rupee breached its previous low of 68.85 to the
dollar hit in August 2013, when India was mired in its worst
currency crisis in more than two decades.
The Reserve Bank of India intervened again in the afternoon,
after spending around $500 million in the morning, eventually
pushing the rupee to a close of 68.73, down from its 68.58 close
A government spokesman attributed the rupee's falls to the
recent slide in emerging market currencies, which has also seen
the yuan hit 8-1/2 year lows.
The rupee has fallen around 3 percent this month, its
biggest fall against the dollar since August 2015, though it has
fared better than many other emerging market currencies since
Donald Trump's shock win in the U.S. presidential election.
Analysts said they expected the rupee to remain under
pressure, with a fall to as much as 70 in the near-term,
depending on global conditions.
"This is a dollar strength story and we need to depreciate
against developing markets to maintain the competitiveness of
the exchange rate," said Ashish Vaidya, head of trading at DBS
Bank in Mumbai, the financial capital.
"The RBI has not been protecting any particular level, but
has been containing volatility."
In 2013, pressure on the current account triggered heavy
rupee selling, but this time India is seen as being far better
positioned to resist outflows from investors attracted by higher
U.S. interest rates.
Expectations that President-elect Trump will pursue an
expansionary fiscal policy that will drive inflation higher and
lead to higher U.S. interest rates are behind rising U.S. yields
that have attracted investors to the dollar.
Since the U.S. election on Nov. 8, foreign investors have
sold a net $1.59 billion from equity markets and $2.02 billion
in debt but remain heavy buyers in markets for the year.
Analysts say India's economic growth, stronger than other
emerging countries, should lend the currency support. Foreign
exchange reserves are also near a record and inflation is low.
Traders also described Thursday's reaction as largely muted
as markets had anticipated the breaching of the record low,
unlike 2013, when the speed of the tumble in the currency caught
"There is no crisis, but a currency re-evaluation of all
emerging market currencies," said a trader at a financial firm.
There are worries, however, that Prime Minister Narendra
Modi's shock move this month to ditch higher-denominated
banknotes could dent growth.
The move, announced on the eve of U.S. elections, has
sparked widespread frustration among Indians struggling to get
new notes, and is expected to hurt the consumer demand that
powers the economy.
India is also still seeing outflows tied to the redemptions
of dollar deposits, expected to total around $28 billion, that
were raised from Indians living abroad to help pull the rupee
out of its crisis three years ago.
The fall in the rupee could offer a test of leadership for
RBI Governor Urjit Patel, who as deputy to predecessor Raghuram
Rajan helped steer India out of the depths of the 2013 crisis
through actions such as the deposit scheme.
Over the past several years, the RBI has steadily
accumulated foreign exchange reserves, which hit a record high
of $371.99 billion at the end of September.
The government has also taken strong action to keep its
fiscal and current account deficits under control, including by
keeping a lid on spending and curbing imports of gold.
"This appears to be a short-term trend of rupee weakness and
long-term dynamics dictates a stable rupee, due to falling
inflation, contracting interest rate and inflation differentials
with major trading partners," financial firm Edelweiss said in a
(Additional reporting by Suvashree Dey Choudhury, Swati Bhat,
and Manoj Rawal; Editing by Simon Cameron-Moore and Kim Coghill)