The rupee ended at 45.5650/5700 per dollar, well up from Tuesday's close of 45.6275/6325.
It last closed higher on December 23 at 45.5550/5600.
"The moment the state-run banks stepped aside, everyone came in and started selling including a lot of traders who had been sitting long," a dealer at a private bank said.
Traders said strong trade and foreign fund inflows were continuing to exert upward pressure on the rupee and only the central bank's sustained interventions had kept the unit's gains in check.
"They have been defending various levels in the recent past but trying to second guess the central bank as to how far they may now allow the rupee to appreciate before intervening again would be hazardous," a dealer at a state-run bank said.