The British pound's weakness propped up the dollar index further into a risk averse environment, as it closed for a fourth straight session on Monday.
The partially convertible rupee dropped 0.8% to 81.6225 per dollar, after hitting a new low of 81.6526 during the day, as stocks and currencies fell across Asia due to global growth concerns.
The dollar index traded above 113 levels for the first time since 2002 as tax cuts in the UK sent the sterling to a record low.
The greenback has risen since the Federal ReserveFederal Reserve sent hawkish signals last week, forcing the rupee to notch its worst weekly performance in a year and a half.
Four traders told Reuters that the 81.50 -- 81.55 level is likely to have sold dollars via state-owned banks during the day to avert a larger decline in the rupee.
The rupee was trading in a 21-paisa range after opening at around 81.55.
We expect the RBI to continue with significant intervention to stall rupee depreciation pressures, especially as the USD INR pair moves towards 82 levels, according to HDFC economists.
If risk-off continues over the Ukraine-Russia war and the dollar is stronger, it could keep it up for longer and the rupee could see a sustained decline over the next six-eight months, despite RBI intervention, they added.
The foreign exchange reserves fell for a seventh week in a row, down by $5.7 billion to $545.652 billion in the week to Sept. 16, according to RBI data on Friday.
Some analysts raised concerns about the pace of decline in reserves.
"We are nowhere near a crisis situation, but the pace of reserves usage is unsustainable," said Alvin Tan, head of Asia forex strategy at RBC Capital Markets.
The RBI monetary policy committee is going to make a decision on interest rates at the end of the week. The Fed's hawkish stance and the rupee's weakness have raised the odds of a 50 basis point hike.