The rupee on Wednesday fell over 50 paise to hit an intraday low of 68.17 per dollar, its lowest since September 2013, when the country was struggling with sluggish growth and high deficits.
Analysts blamed global factors -- the continued slide in crude oil and fears of hard landing in China - for the sharp decline in the rupee.
A sharp selloff in domestic equity markets, which hit a 20-month low today, also hit sentiments, traders say.
Some experts expect the rupee to slip beyond the record low of 68.85 - hit in August 2013 - in the coming days.
"The rupee will remain volatile as long as these global sentiments prevail and crossing the next barrier of Rs 69 cannot be ruled out in the very short term," said Madan Sabnavis of Care Ratings.
However, the currency is unlikely to remain under pressure for long because India's economic fundamentals continue to remain strong, traders say.
"As trade and current account deficit may be expected to remain well under control unlike 2013, and FDI continues to be strong, a return to the Rs 66 mark could be expected," Mr Sabnavis said.
The rupee has fallen by 2.28 per cent in the first three weeks of 2016, but it has outperformed other emerging market currencies such as South Korea, Argentina, Turkey, Mexico, Russia and South Africa, traders say.
Power Minister Piyush Goyal sought to highlight the fact today, saying other currencies have depreciated more.
The rupee closed off the day's low at 67.95 per dollar against Tuesday's close of 67.65, helped by dollar sales from state-owned banks.
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