The Nifty 50 closed 0.46% lower at 19,543.10, while the S&P BSE Sensex fell 0.47% to 65,688.18.
While the RBI kept the key repo rate unchanged for the third time in a row at 6.5%, governor Shaktikanta Das said there could be a substantial rise in headline inflation in the near-term and flagged uncertainty in the domestic food price outlook.
The RBI also raised its retail inflation forecast for fiscal 2024 to 5.4% from 5.2% earlier.
Consumer stocks like Asian Paints, ITC, Britannia Industries and Nestle India were among the top Nifty 50 losers.
Sectors sensitive to domestic interest rates like financials , banks, public-sector banks, private lenders, auto and realty fell between 0.25% and 0.90%.
The RBI also asked banks to set aside a larger part of incremental deposits under the cash reserve ratio (CRR) to tighten liquidity in the near term.
“Overall, the incremental CRR was unexpected and a reduction in liquidity surplus represents monetary tightening,” said Nikhil Gupta, chief economist at brokerage Motilal Oswal Financial Services.
The governor said the measure will be temporary and the RBI will review it on September 8.
The central bank’s commitment to tackle inflation “suggests that rate cuts are clearly out of sight in the near term,” said Anitha Rangan, economist and associate director at Equirus group.
Among individual stocks, Zee Entertainment Enterprises jumped 16.55% after the National Company Law Tribunal approved the media firm’s proposed merger with Sony, people present at the hearing said.
Investors now await US retail inflation data, due at 6pm IST, for cues into the US Federal Reserve’s rate-hiking trajectory.