Also see: 5 facts on why rupee is falling despite declining oil prices | India's growth struggle
Traders were on watch for any potential intervention from the Reserve Bank of India to defend the currency, as the renewed global risk aversion comes at a time of deep uncertainty about India's fiscal and economic outlooks.
The RBI disappointed domestic markets by keeping interest rates on hold on Monday, the same day when Fitch Ratings cut the country's outlook to "negative", becoming the second credit agency to threaten India's investment grade rating.
The focus has shifted to the government, which faces a daunting task of reviving faltering economic growth while ensuring its current account and budget deficits do not widen any further.
The rupee’s previous record low was 56.52, which it hit on May 31.
Copyright: Thomson Reuters 2012