The rupee managed to pull back from its early lows and eventually ended flat at 64.07 against the US currency amid sharp losses in local equities.
The RBI's policy review is expected to dominate forex market sentiments during the week.
Overall forex market sentiment took a beating following the last week's budget proposals of 10 per cent long-term capital gains (LTCG) tax on equity investments and also impacted by a higher than expected fiscal deficit target.
The rupee has given back all its 2018 gains post budget announcements.
However, country's strong macro-economic fundamentals and abundant forex reserves predominantly helped the currency market to stabilise a bit after recent crash.
The US dollar was steadier against most Asia Pacific majors with Treasury yields climbing once again.
In the meantime, the widespread panic sell-off in domestic equities remained unabated for the fifth straight session, taking the key benchmark indices to multi-week lows spooked by the government's decision to reintroduce the long-term capital gains (LTCG) tax in the last week's Budget proposal.
While equity markets as a whole are undergoing a so called 'correction' in the midst of turbulence in the Treasury market amid heightened speculation that the Federal Reserve would raise interest rates more aggressively than had been expected.
The BSE Sensex tanked over 310 points to end at 34,757.16, while Nifty plunged 94 points to at 10,666.55.
Meanwhile, foreign investors have pumped in a whopping $3.5 billion (over Rs 220 billion) into the country's capital markets in January in anticipation of better corporate earnings and attractive yields.
India's forex kitty jumped sharply by $3 billion to touch a new life-time high of $417.789 billion in the week to January 26, the RBI said.
On the energy front, crude prices skidded to their lowest levels in a month, as rising US output and a weaker physical market added to the pressure from a widespread decline across equities and commodities.
Brent crude futures were trading higher at $67.98 a barrel in early Asian trading.
Extending last week's sell-offs, the Indian unit opened sharply lower at 64.20 from 64.06 previously at the Interbank Foreign Exchange (forex) market on sustained dollar demand from importers and banks.
Maintaining its bearish undertone, the home unit drifted sharply to hit a fresh one-month low of 64.24 in late afternoon deals before staging a spirited recovery on the back of easing dollar pressure.
It hit a session high of 64.01 towards to tail-end trade before settling at 64.07, showing a mere fall of one paisa.
The RBI, meanwhile, fixed the reference rate for the dollar at 64.0295 and for the euro at 79.7295.
Globally, the US dollar was steady, after rallying on Friday as a stronger than expected US jobs report bolstered expectations for a faster pace of rate hikes by the Federal Reserve this year.
The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.14 in early trade.
In cross-currency trades, the rupee surged ahead against the pound sterling to finish at 90.27 per pound from 91.12 and rebounded against the euro to close at 79.81 as compared to 80.02 earlier.
The local unit, however, fell back against the Japanese yen to end at 58.32 per yens from 58.30.
In forward market today, premium for dollar eased due to mild receiving from exporters.
The benchmark six-month forward premium payable in July softened to 142-144 paie from 143-145 paise and the far- forward January 2019 contract also edged lower to 281-283 paise from 282-284 paise previously.