The rupee fell for a third straight session on Tuesday, dropping 0.25 percent to its lowest close in 10-1/2 months as foreign funds and importers bought up dollars on the expectation it would weaken further.
Traders said however the rupee recovered from a session low of 44.97 per dollar after the central bank briefly stepped in and bought rupees through state-run banks to calm the market.
Many banks which had taken long dollar positions in the morning also liquidated them later to avoid going into Wednesday's local holiday with open exposures.
Markets in India's financial hub Mumbai will be closed on Wednesday for a local Hindu religious festival.
The rupee finished at 44.87/88 per dollar, which was its lowest close since 44.985/45.005 on November 26, 2004.
"There was some supply (of dollars) on behalf of the central bank when the rupee neared 45," a senior dealer at a state-run bank said. "Given that the Indian economy and companies cannot absorb this kind of volatility, something had to be done."
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