The rupee on Thursday slipped close to an all-time low against the US dollar amid rising demand for the greenback from importers and a sluggish flow of funds from foreign investors who have lately turned wary of India because its economy is slowing down sharply and public finances have deteriorated much.
The Indian currency fell to a one-year low of 57 against the dollar in intraday trade before recovering to 56.84 at close of trading on Thursday.
Experts signaled more worries ahead.
"The rupee is likely to depreciate further towards its record low of 57.33," said Sugandha Sachdeva, currency analyst, Religare Securities.
The Indian currency's woes add to bad news for the UPA government, which is struggling to rein in subsidies and overspending under pressure from international ratings agencies.
A weaker rupee makes imports costlier, especially of imported crude on which India relies on heavily, and will stoke already high consumer inflation. It will also make parents pay more for sending their children overseas for studies. On the flip side, the outsourcing Industry and some exporters may benefit from depreciating rupee.
The Reserve Bank of Indian attributed the rupee's fall to rising current account deficit (CAD) - the broadest measure the country's trade balance with the rest of the world. Exports stood at $24 billion in April while imports were higher at $42 billion.
"The issue is that... if we have a current account deficit and fiscal deficit, rupee has to orderly depreciate and if it doesn't depreciate orderly, sometime it would be depreciating in-orderly," said KC Chakrabarty, deputy governor, RBI.
Finance minister P Chidambaram, however, sought to play down the risks and the gloomy outlook.
"There is no alarm bell on the Rupee front. I think rupee will soon find its stable level. (Foreign) Inflows are good in past two months, it was extremely good," he said.