The rupee posted its biggest single-day fall in six-and-half months on Wednesday as heavy dollar outflows from the domestic share and debt markets continued as foreign investors pared their holdings.
Foreign funds have sold $363.48 million worth equities and $440.15 million worth of debt so far this month, bringing down total inflows so far this year to $25.60 billion.
The sales come on the back of weaker global markets, with risk assets hit on Wednesday on reports of a build-up of Russian troops near the border with Ukraine.
The risk aversion offset expectations the Reserve Bank of India would continue to focus on bringing down inflation to meet its goal of reducing the consumer price index to 6 percent by January 2016, which is expected to be supportive of the rupee.
"I think stability will come back soon," said Samir Lodha, managing director at QuantArt Market Solutions.
"The inflation focus is a positive for the rupee, especially the supply side measures by the government. Unless global markets see a deep correction, the rupee will hold in a broad 60.50 to 61.50 range with a bottom at worst limited to 62."
The partially convertible rupee closed at 61.4950/5050 per dollar compared to 60.8450/8550 on Tuesday. The rupee dropped 1.06 percent on the day, its biggest single-day fall since Jan. 24 and its second-biggest fall so far in 2014.
Losses in the rupee tracked weaker Indian shares and other Asian currencies.
In the offshore non-deliverable forwards, the one-month contract was at 61.92 while the three-month was at 61.56.