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The rupee fell on Wednesday to within striking distance of a record low, as dealers waited for word from policymakers on steps designed to boost inflows and prop up the battered currency.
Bond and forex dealers were betting the next steps to defend the rupee would come from the government, averting further harsh measures by the Reserve Bank of India to tighten cash.
Financial sector regulators, including Raghuram Rajan, who takes over next month as governor of the RBI, were meeting in Mumbai but the meeting's outcome is not yet known.
New Delhi is likely to relax borrowing rules for debt-laden Indian companies, including doubling the amount a firm can borrow overseas to $1.5 billion, the Economic Times newspaper reported.
The rupee closed at 61.30/31 against the dollar, clawing back slightly from the day's low of 61.4475, which was not far off the previous day's record low of 61.80.
"Rajan is definitely a big positive for the RBI and India," said Paresh Nayar, head of fixed income and currencies at First Rand Bank.
"But rupee appreciation is dependent on some major macro announcements. We all are living on hope . . . and the wait is getting a bit longer."
New Delhi has considered a sovereign bond issue or a sale of bonds to non-resident Indians by state-run firms, although the central bank has opposed a sovereign issue.
Policymakers have tried to avoid raising the policy repo rate, a step likely to force up bank lending rates, for fear of worsening a slowdown in an economy that grew 5 percent in the last fiscal year, its slowest rate in a decade.
The central bank's costly gamble last month to raise short-term interest rates and drain market liquidity in order to defend the rupee at the cost of crimping corporate credit is not paying off, with the currency down 2.3 percent since before the measures were unveiled on July 15.
Bonds posted gains, with the benchmark 10-year yield down 6 basis points at 8.14
The central bank's steps were increasing downside risks to growth, Morgan Stanley said on Wednesday, which could slide to levels of 3.5 per cent to 4 per cent if the economy fell into a vicious slowing cycle.
The investment bank's warning comes amid recent cuts in growth forecasts for Asia's third-biggest economy from a raft of banks and brokerages, such as Bank of America Merrill Lynch, Macquarie and CLSA.
India's Congress-led government, facing a hostile opposition in the monsoon session of parliament that started this week, has been promising more steps to boost fund inflows.
But a second day of gridlock in Parliament over India's response to a border ambush that killed five soldiers in disputed Kashmir raised questions about how the government would drive through its bulky legislative agenda, including an ambitious food security measure.
Most investors saw India's battered image being helped by Tuesday's appointment of Rajan, a former chief economist of the International Monetary Fund, to head the country's central bank.
"We think Rajan's appointment will give the government breathing space to come up with a more credible road map to address currency weakness and outflows," Barclays economists wrote in a note.
"To restore market confidence, the authorities need to change the strategy and admit to the seriousness of imbalances in the economy and come up with a strong package of measures addressing both short-term flows and the need to stimulate growth and reduce the current account deficit."
