Retreating from multi-month high, the rupee on Monday plunged by 18 paise to close at 65.03 against the US currency on fresh dollar demand from importers and banks.
Buoyant dollar overseas predominantly impacted trading sentiment, though robust capital flows into equities and debt largely cushioned the fall.
This is the biggest one-day fall against the greenback in nearly two months.
The home currency hit a nearly 18-month high of 64.76 in early trade - the level not seen since October 23, 2015 - before retreating sharply in late afternoon trade.
Currency traders stayed on sidelines amid extreme caution ahead of the two-day RBI meet and also some key economic data releases later this week, a forex dealer said.
Indian bourses staged a spectacular come back after a consolidation to end at historic high as business sentiment turned extremely bullish following the clearing of four GST supporting bills by Parliament last week amid better global cues.