The rupee slid back towards a record low on Friday, with investors braced for a statement on the state of economy from Prime Minister Manmohan Singh and the release of data that was expected to show India in the grip of a protracted slowdown.
Weak economic growth, a record high current account deficit and concerns about the government's finances are proving a toxic mix for the rupee, which hit a record low of 68.85 on Wednesday after falling around 20 percent since May.
The Reserve Bank of India had prompted the rupee's largest single-day rally since January 1998 on Thursday by saying it would provide dollars directly to state oil companies to pay for imports, but the recovery proved short-lived.
By late morning, the partially convertible rupee was trading at 67.36 per dollar, down from Thursday's close of 66.55. Having tumbled 10.4 percent against the dollar so far this month, the rupee was set to record its largest monthly depreciation ever, according to Thomson Reuters data.
The fall has been so fast that is now firmly in territory that is uncharted, leaving analysts unsure how far it can go.
Gross domestic product data, due to be released after the markets close, is expected to show the economy grew 4.7 percent in the April-June quarter, marking a third consecutive quarter of sub-5 percent growth.
India suffered decade-low growth of 5 percent in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse.
"The lack of affirmative action by the government on improving the investment cycle in rest of the year risks reviving a downward spiral, which might pave the way for slip below 4 percent mark, as a worst case scenario," said Radhika Rao, an economist at DBS in Singapore, in an email to clients.
With a national election due by May, Singh's minority government is under fire from all quarters to come up with meaningful reforms, including a possible increase in diesel prices, that would lower the subsidy burden.
While the government gropes for game-changing policies to revive investment, while containing its fiscal deficit and reducing the current account gap, the central bank has led the defence of the currency.
A radical plan is being considered by the central bank, a source familiar with the RBI's thinking told Reuters, to cut gold imports, the second biggest item after oil on the import bill, a source familiar with the RBI's thinking told Reuters.
The proposal, which has met with scepticism in some quarters, would see commercial banks buy gold from ordinary citizens and sell to precious metal refiners.
Another suggestion came from Trade Minister Anand Sharma, who on Thursday said the RBI could monetise its gold reserves in order to reduce imports, while adding that it was up to the central bank to decide.
The RBI's main defence of the rupee has rested on draining cash from domestic money markets and raising short-term interest rates, but that has made it more costly for struggling corporates to raise money, putting another brake on growth.
RBI Governor Duvvuri Subbarao, whose tenure ends next week, said on Thursday that those actions were necessary to stabilise markets, and urged the government to find longer-term solutions to the country's current account deficit.
Although global factors such as the potential end to U.S. stimulus and most recently tensions over Syria have contributed to the rupee's falls, Subbarao said domestic factors were at the root cause, an assessment shared by most analysts.
On Thursday, India's lower house of parliament approved a land acquisition act, that is meant to help investment in industry and infrastructure, while protecting farmers interests by letting them get up to four times the market rate for their land. Critics say the new law will hardly help revive the floundering economy.