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The Indian rupee edged past 65.70 against the U.S. dollar on Tuesday surpassing the all-time record low of 65.56 hit just last week. Stock markets fell around 3 per cent tracking the weakness in the rupee. The BSE Sensex crashed over 500 points.

The rupee traded at 65.65 as of 11.40 a.m., falling 2.1 per cent against Monday's close of 64.30. It hit a record low of 65.71.

Markets sentiments seem to have been impacted by the $20 billion Food Security Bill, passed in the lower house of Parliament yesterday. The Bill, which seeks to provide cheap grain to the poor, has raised concerns that India's fiscal deficit will blow out even further.

Finance Minister P.Chidambaram assured that the government would stick to its fiscal deficit target for the year, but the comments failed to sway investors.

"The Food Security Bill is the key reason for the rupee's fall today. It would open floodgates for (credit) ratings downgrades, if the fiscal deficit is not reined in," Ashtosh Raina, head of foreign exchange trading at HDFC Bank told Reuters.

Sustained foreign selling in equities also continued to raise concerns about the gaping current account deficit. Overseas investors have sold about $810 million worth of shares in the previous seven sessions through Monday, adding to pressure on the rupee.
 

(With inputs from Reuters)