In its quarterly policy review, the Reserve Bank of India (RBI) raised its short-term lending rate by 25 basis points to 7.50%, as markets had expected, but left its borrowing rate unchanged and did not cut the statutory liquidity ratio (SLR).

“There was no mention of SLR in the policy. This boosted sentiment. Banks were able to recover some of the earlier sessions’ losses because of this,” a foreign bank trader said.

The yield on the benchmark 10-year bond ended at 7.72%, down from the previous close of 7.90% and its lowest close since January 12.

Earlier this month, the government gave the central bank the power to lower the SLR level, which had led to heavy selling of bonds on worries it would cut the rate on Wednesday. Traders said that Tuesday’s ratings upgrade of India by Standard & Poor’s to investment grade had also helped sentiment.

In the inter-bank call money market, the call rate hovered in the range of 7.70-7.80%. The RBI through its liquidity adjustment facility injected Rs 14,010 crore under its repo auction and absorbed just Rs 115 crore under reverse repo auction on Wednesday.

In the forex market, the rupee rose to a near one-year high on Wednesday after S&P’s raised India’s ratings, boosting hopes for robust capital inflows, but gains were limited by suspected RBI intervention.

The rupee ended at 44.17/18 per dollar after hitting 44.10. It ended at 44.20/21 on Monday. “The S&P upgrade helped the rupee early, but the RBI came in around the 44.10 level, driving it lower,” said the chief dealer at a private bank. “The negative stance toward non-resident Indian deposits, announced today is also a clear message from the central bank: We don’t want your money. But that may not halt the flows.” The central bank decided to reduce the ceiling on interest rates paid on bank accounts owned by Indians living abroad, and to put a cap on fresh loans drawn against these deposits.

In the forward market the six-month premium ended lower at 3.52% as against its previous close at 3.87% while the twelve-month premium also moved down to 3.08% from its previous close at 3.22%.