The rupee skidded to record lows for the third day on Wednesday as capital outflows picked up on concerns about a sharp slowdown in domestic growth.
At 10:10 a.m. (0440 GMT), the currency was at 53.62/63 per dollar, after hitting an all-time low of 53.75 - at which level it has dropped 18.4 percent from its year-high in July.
The bearish sentiment is very strong and there is nothing going for the rupee, said Hari Chandramgathan, a foreign exchange dealer with Federal Bank. Euro broke below key supports and the dollar index has broken above 80.
Sailesh K. Jha, head of Asia strategy at Skandinaviska Enskilda Banken, said the rupee was vulnerable because of large external debt payments of about $20 billion due in the first half of 2012 and importers had not hedged currency risk significantly.
We anticipate continued net outflows from the equity market into first half of 2012 as the uncertainty on the outlook for India growth, inflation and macroeconomic policies lingers, Singapore-based Jha said.
The rupee, Asia's worst performing currency this year, could slip to 55 by the end of December and head to 57 in the first quarter of 2012.
A growing trade deficit and the low probability of strong intervention by the Reserve Bank of India, given the limited firepower in its currency reserves, is likely to keep the rupee under pressure, traders said.
However, the battered rupee has probably touched bottom and will rise modestly by the end of next year, a Reuters poll showed.
One-month offshore non-deliverable forward contracts were quoted at 53.62.
The one-month onshore forward dollar premium was steady at 33 points, while the three-month rose to 80.50 from 79.50 and the one-year premium was at 227.75 from 225.75.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX, and the United Stock Exchange were at 54.04, 53.80 and 53.795, respectively.
The BSE Sensex was up 0.4 percent in anticipation of a drop in inflation and a pause in the RBI's tightening cycle.
Data due around noon (0630 GMT) is expected to show headline inflation likely eased in November to 9.04 percent from 9.73 percent the month before, a Reuters poll showed.
The RBI is widely expected to keep rates on hold at its review on Friday, and economists expect it to accelerate monetary easing in 2012 as economic conditions worsen in Asia's third-largest economy.