Registering its second biggest fall in 2013, the rupee today lost a staggering 50 paise to hit a one-week low of 54.36 vs the US dollar due to heavy capital outflows as Budget failed to cheer investor sentiment.
Month-end dollar demand from importers, mainly oil companies, also hit the domestic currency, amid a steep fall in local equities, forex dealers said.
Previously, it had plunged by 57 paise, or 1.05 per cent on January 4, 2013.
"Government proposing about Rs 17,000 crore higher net borrowing target in the Budget, which was more than street expectations, hit market sentiment to a great extent. This in turn hit the rupee. Especially, banks stocks were badly hit on concerns of tighter liquidity situation," said Mohan Shenoy, Head (Treasury) at Kotak Mahindra Bank.
Foreign institutional investors (FIIs) pulled out a whopping USD 242.4 million (Rs 1,317.79 crore) from Indian equities today, according to BSE provisional data.
Globally, strengthening of the dollar against a basket of major currencies also put pressure on rupee, he added.
The rupee commenced higher at 53.64 a dollar from yesterday's close of 53.86 at the Interbank Foreign Exchange (Forex) market. It moved in a wide range of 53.60-54.49 in an extremely volatile trade before settling at 54.36, a fall of 50 paise, or 0.93 per cent.
Meanwhile, the BSE benchmark Sensex fell to a three month low of 18,861.54, a fall of 291 points.
However, IDBI Bank's Treasury Head N S Venkatesh welcomed the Budget, calling it "pragmatic and practical" and setting a tone for fiscal management by announcing higher growth projections. He said the fall in markets was mainly due to month-end for F&Os.
Venkatesh said Finance Minister P Chidambaram proposed a slew of measures for FIIs, which in turn bring in more funds into the country boosting the rupee.
"FIIs would be permitted to participate in exchange traded currency derivatives segments. Their limit would be to the extent of their Indian rupee exposure in the country. This would give these investors cover from currency exchange risks," he said.
"Tax on both 'super-rich' on individuals and companies also made the markets jittery which discounted on annual earnings. However, from tomorrow onwards, the markets are going to improve," Venkatesh said.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The fall in rupee during the day was largely on the back of continuing dollar demand from importers who did not get clarity after Finance Minister P Chidambaram unveiled the Budget for FY13-14."
The rupee depreciated after the budget was announced by the FM, where he said spending needs to be increased. It failed to give any roadmap as to how to fund the deficit and how to attract the flows in the market, said Abhishek Goenka, Founder and CEO, India Forex Advisors.
The premium for the forward dollar closed mixed. The benchmark six-month forward dollar premium payable in July declined to 164-166 paise from yesterday's close of 166-168 paise while far-forward contracts maturing in January rose to 332-334 paise from 329-331 paise.
The RBI fixed the reference rate for the US dollar at 53.7735 and for euro at 70.6805.
The rupee fell back sharply against the pound sterling to 82.57 from previous close of 81.58 and also moved down against the Japanese yen to 59.00 per 100 yen from 58.79.
It dipped against the euro to 71.29 from Wednesday's close of 70.53.