BSE Sensex ended 205 points or 0.63 per cent lower at 32,597.18 and Nifty50 closed at 10,044.10, down 0.73 per cent or 74 points.
According to market experts, the apex bank took the decision after inflation figures jumped to a seven-month high and stronger economic growth reduced the need for monetary stimulus.
The monetary policy committee (MPC) listed upside risks to inflation and increased inflation projection marginally for the year. It now expects inflation to range between 4.3-4.7 percent in the third and fourth quarters of the current fiscal.
"The benchmark indices ended lower on Wednesday as the Reserve Bank of India kept the repo rate unchanged, which was on expected lines. The fifth Bi-monetary policy met street expectations, however, investors would now focus on the the US Fed meet next week. Further, the outcome of state elections in Gujarat (on December 18) would be another key trigger, which would dictate the near-term market trend. Selective buy-on-dips is the preferred strategy at the current juncture," said Jayant Manglik, President Retail Sales, Religare Securities.
PSU banks took a beating with shares of Union Bank, Canara Bank, Bank of Baroda, Indian Bank, Oriental Bank, PNB, Syndicate Bank and SBI losing over 2 per cent each. Nifty PSU Bank index was the top sectoral loser, down 2.10 per cent at 3,751.75.
Meanwhile, losses in metal stocks such as Hindustan Copper (down 4.60 per cent), Jindal Steel (down 4.06 per cent), Hindustan Zinc (down 3.46 per cent), Hindalco (down 3.19 per cent), SAIL (down 3.07 per cent) and MOIL (down 2.92 per cent) among others also hit market sentiment.
BSE Midcap index ended the day 0.89 per cent lower at 16,662.88 with stocks such as Reliance Communications (down 5.64 per cent), Ajanta Pharma (down 5.24 per cent), Jindal Steel (down 4.27 per cent), Union Bank (down 3.38 per cent) and JSW Energy (down 3.34 per cent) being the major drags.
Smallcap stocks such as Shankara (down 16 per cent), Plasti Blends India (down 7.81 per cent), Nitco (down 7.42 per cent), Saregama (down 7.21 per cent) and Panama Petrochem (down 7.21 per cent) were the top losers. BSE Small cap index declined 118 points or 0.66 per cent to end at 17,800.83.
Nifty IT (up 0.45 per cent) was the lone sectoral gainer. All other sectoral indices ended the day in red.
Meanwhile, shares of Reliance Communications (down 4.94 per cent) extended their slide to fourth session amid a Reuters report that suggested two major Chinese lenders plan to support a move by China Development Bank (CDB) to put the company into insolvency court as they seek to recover about $2 billion in debt.
Globally, bitcoin continued its wild rally with the price of the cryptocurrency surging to to $12,000 dollar on Wednesday.
China’s blue-chip CSI300 index was down 0.6 per cent, with its financial sector sub-index lower by 1.11 per cent.