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The rupee slumped nearly 1 per cent to hit a low of 66.50 per dollar on Monday, its lowest since September 2013. The selloff in the rupee weighed on the domestic markets too, with the BSE Sensex crashing over 1,000 points in morning trade.

 The weakness in the rupee drew the attention of Reserve Bank Governor Raghuram Rajan, who on Monday said that the central bank will not hesitate to use reserves to reduce the volatility in currency.

 "Many of you watching markets this morning worried about volatility... India is in a good condition. RBI won’t hesitate to intervene on rupee," the Governor said.

 The Reserve Bank does not target a specific level for the rupee, but intervenes in forex markets to curb the volatility in the currency through state-run banks.

 The rupee has come under huge selling pressure since August 11, when China devalued its yuan currency. The devaluation of the yuan stoked concerns about the state of China’s economy, already growing at the slowest pace in 25 years.

 Traders fear that China could be forced to devalue the yuan even more should its economy falter. This has led to concerns about a currency war that could prove disastrous for global equity markets.

 Last week, Dr Rajan said China’s devaluation of the yuan was not a concern, but did not rule out a currency was if the move was part of a long-term competitive devaluation.

 The devaluation of the yuan has impacted most emerging market currencies. South Africa’s rand struggled at 14-year lows, the Turkish lira languished near a record low, while the Malaysian ringgit hit a 17-year low. South Korean authorities were suspected of selling dollars to arrest the won’s fall.

 The Indian rupee has been better off as compared to its emerging market counterparts, but it has lost nearly 4 per cent in the last two weeks.

 The depreciation in the rupee hits foreign investors and diminishes their returns. Analysts say foreign funds have started selling shares aggressively because of the rupee fall.

 As of 10.20 a.m., the rupee traded at 66.35 per dollar, down 0.8 per cent against Friday’s close of 65.83 against the greenback.