The rupee slid by 56 paise to a fresh 17-month low of 74.24 (provisional) against the US currency on Thursday due to strong dollar demand as investors pruned riskier bets amid coronavirus pandemic fanning recession fears.
Indian equity markets suffering their worst single-day losses and stock indices slipping into bear territory also hit the rupee sentiment.
At the interbank foreign exchange market, the rupee was trading down by 56 paise at 74.24 in the closing session.
The local unit opened lower at 74.25 against last close of 73.68 and fell further by 82 paise to 74.50 after the World Health Organization declared the new coronavirus (COVID-19) a pandemic.
Following the WHO announcement, US President Donald Trump suspended all travel from Europe, excluding the UK, to the US for the next 30 days to stop the spread of the virus.
The US reaction ramped up fears of worldwide recession, drowning the dollar and crude oil.
Brent crude futures, the global oil benchmark, fell 5.53 per cent to $33.81 per barrel.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, as they sold shares worth Rs 3,515.38 crore on Wednesday, as per provisional data.
The Reserve Bank also announced measures including US dollar buy/sell swaps of $2 billion to infuse liquidity in the forex markets and meet dollar demand.
According to market data, foreign investors have withdrew more than Rs 21,000 crore from Indian capital markets in this month so far.
After nosediving over 3,204.30 points on across-the-board selling, the 30-share BSE Sensex closed 2,919.26 points or 8.18 per cent lower at 32,778.14.
Likewise, the broader NSE Nifty gave up the 9,600 level, slumping 868.25 points or 8.30 per cent to close at 9,590.15.
This was the biggest drop for the benchmarks in absolute terms, eclipsing their previous record one-day fall on Monday (March 9).