The domestic currency closed sharply down at 68.07 per dollar against the previous close of 67.51 per dollar on heavy dollar demand.
The rupee went into a tailspin by plunging 56 paise, the second biggest single-day fall of 2018, to end at a new 16-month low of 68.07 as panic dollar demand rattled currency market, PTI reported.
The pound sterling also finished higher at Rs 91.98/92.00 at the Interbank Foreign Exchange market.
Market sentiment took a hit after the main opposition Congress party said it would form an alliance with the Janata Dal (Secular) to rival Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) in the assembly elections in the southern state of Karnataka.
BJP looked set to win the largest number of seats in the assembly elections in the state, which would give Modi momentum for a re-election bid next year and open the path for more reforms, which investors view as a positive for markets.
Rupee had earlier in the day erased losses on likely Reserve Bank of India’s intervention. It had recovered to 67.60 to the dollar only to pare losses on political uncertainty in Karnataka.
The BSE Sensex closed 12.77 points, or 0.04 per cent, down at 35543.94, whereas NSE Nifty index settled 4.75 points, or 0.04 per cent, down at 10801.85.