The rupee slumped to an all-time low of 53.35 to the dollar on Tuesday as shrinking domestic factory output and worries Europe's debt crisis could dampen global risk appetite triggered a scramble for dollars.
The beleaguered currency has been under pressure due to rising import bill and slowing export growth, which is expected to swell the current account deficit to $54 billion by the end of March.
At 10:45 a.m. (0515 GMT), the partially convertible rupee was at 53.31/32, taking losses to 17.8 percent from its year-high in late July. It had closed down 1.5 percent on Monday at 52.84/85.
The outlook for the rupee, Asia's worst performing currency this year, remains bearish.
There is only one direction for the rupee now and it is not coming back soon because there is demand but no supply, said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
This situation will persist until the global debt issues are resolved.
India is vulnerable to portfolio outflows from the stock market after data on Monday showed October industrial output slumped 5.1 percent, the first drop in more than two years.
On Friday, India slashed its full-year growth forecast amid slowing domestic and global demand and officials warned the government was facing a serious balance of trade problem.
Traders said they were watching the Reserve Bank of India RBI.L for any intervention to halt the slide.
If the RBI does not intervene the unit can slide to 55, Raina said.
Analysts have said India may face its worst financial crisis in decades if it fails to stem the rupee's slide, leaving the central bank with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.
The RBI sold $845 million in September for the first time in 10 months, and a further $943 million in October, according to the latest central bank data.
Mohan Shenoy, treasurer at Kotak Mahindra Bank, said the rupee would become fairly valued at 53.75/54.00, which was the real effective exchange rate.
It could see some support at that level, he said.
The one-month offshore non-deliverable forward contracts were quoted at 53.33, at par with the onshore spot rate.
The one-month onshore forward dollar premium was at 32.50 points from 33.25 on Monday, the three-month was at 75.75 from 75, and the one-year premium was at 214.50 from 216.50.
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 all at 53.47. The total volume was at $1.2 billion.