The rupee had its steepest single-day fall in nearly two years, ending the session 58 paise down to be at its historic low of 86.62 (provisional) against the US dollar on Monday.

The Indian currency was dragged down by a stronger US dollar, surging crude oil prices and continued foreign capital outflows.

At the interbank foreign exchange, the rupee opened at 86.12 against the greenback, and moved 1 paisa during intraday to 86.11 before closing the session deeply hurt.

The Reserve Bank of India (RBI) decided to do minimal intervention. Among the Asian currencies, the rupee had the worst fall.

The fall of 58 paise, or 0.67%, in one session was the steepest since 6 February 2023 when the unit had depreciated 68 paise.

The Indian currency has witnessed the deepest plunge of more than Re 1 in the past two weeks from the closing level of 85.52 on 30 December.

Rupee had breached the 85-per-dollar mark for the first time on 19 December 2024.

The slump of the rupee to 86-per-dollar from 85 took place in 16 trading sessions. This was in contrast to the 46 working days it took for the rupee to slide from 84 to 85. The gap was much wider when it fell from 83 to 84, taking 478 days to weaken to that spot. 

On Friday, the rupee had declined 18 paise to settle at 86.04 against the US dollar, a day after registering a marginal gain of 5 paise. In the preceding back-to-back sessions on Tuesday and Wednesday, it had plunged 6 paise and 17 paise, respectively.

The unprecedented fall was attributed to the relentless chase of the US dollar by investors, news agency PTI reported. This also led to a massive withdrawal of foreign capital from Indian equities.

Foreign Institutional Investors (FIIs) offloaded equities worth Rs 2,254.68 crore on Friday. So far this month foreign investors have withdrawn Rs 22,194 crore from Indian equities, according to exchange data.

According to analysts, the RBI has allowed the fall in rupee's exchange rate versus US dollar amid dwindling forex reserves and declining emerging market currencies.

India's forex reserves dropped by $5.693 billion to $634.585 billion in the week ended 3 January, marking a 10-month low.

At the same time, the dollar strengthened on better-than-expected job growth in the US market, which also fuelled the rising benchmark treasury yields amid expectations of slower interest rate cut by the Federal Reserve, PTI reported quoting analysts.

Besides, the US has imposed more sanctions on Russia, triggering Brent oil higher towards USD 81 per barrel. This comes at a time when investors are already cautious in anticipation of restrictive trade measures by the new regime under President Donald Trump.

The rupee hit a fresh low on strong dollar and weak global markets, PTI quoted Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, as saying. FIIs continue to remain as net sellers, while crude oil prices rose nearly 2%.

Going ahead, Choudhary said, rising crude oil prices and risk aversion in global markets may weigh on the rupee. "USD-INR spot price is expected to trade in a range of Rs 86.25 to Rs 86.80," he said.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading up 0.29% to its over two-year-high level of 109.80. The 10-year US bond yields rose by 0.48% to touch its October 2023 level at 4.79%.

Brent crude, the global oil benchmark, surged 1.12% to USD 80.65 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex crashed 1,048.90 points, or 1.36%, to settle at 76,330.01 points, while the Nifty tanked 345.55 points, or 1.47%, to 23,085.95 points.

On the domestic macroeconomic front, retail inflation eased to 5.22% in December, from 5.5% in November, 2024.

The industrial production (IIP) growth accelerated to a six-month high of 5.2% year-on-year in November 2024, riding on the increased festive demand and pick-up in the manufacturing sector.