The rupee closed at a new provisional record closing low of 53.9750 to the dollar as global risk aversion spiked and as higher-than-expected domestic inflation data hit stocks by lowering expectations for future rate cuts.
The rupee came very close to falling below the psychologically key 54-level and ended not far from the record low of 54.30 hit in mid-December.
Earlier, reports indicated that the Reserve Bank of India (RBI) may have sold dollars via state-run banks as the rupee approached a five-month low.
Traders said the RBI likely sold dollars from 53.90 rupee levels.
The rupee had hit 53.95 to the dollar on May 4, a breach of which would make the currency test its all-time low of 54.30 seen in mid-December.
A weak euro, which was hovering near four-month lows, and demand from oil importers were weighing on the rupee, they said.
If Rupee weakens further, it might even touch 55-56 against a dollar, said market experts.
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