India's central Reserve Bank of India was believed to have intervened in the foreign exchange market Friday to rescue the rupee from near-record low levels, dealers said.
"The RBI is believed to have sold dollars at around 61.12 levels," said a dealer at a Mumbai forex outfit, asking not to be named.
The currency recovered briefly to 60.89 levels but slipped again to end at its lowest-ever closing of 61.10, dealers said.
The rupee, Asia's worst performing major currency this year, hit a lifetime low of 61.21 to the dollar last month in intraday trade.
Slackening domestic growth, weak exports, rising foreign fund outflows and India's high current account deficit have battered the rupee.
Demand for the dollar has also increased amid expectations of a sooner-than-expected scaling back of US stimulus as the American economy recovers, analysts said.
"The rupee remains in a very bearish state. Until the government takes steps to boost capital flows into India, the situation will not improve," said Param Sarma, chief executive of NSP Forex.
Analysts fear that the currency could fall to the 62 rupee to the dollar level or lower in coming months if the US Fed starts to taper off its stimulus.
RBI governor Duvvuri Subbarao, in a speech in southern city of Hyderabad on Friday, said that the bank will roll back recently announced tightening measures "only after stability has been restored to the foreign exchange market".
Last month the RBI brought in a range of measures to prop up the rupee, including raising short-term interest rates and lowering the amount banks can borrow or lend under its liquidity limits.