Indian stocks and the rupee fell after the Reserve Bank kept policy rates unchanged for the fifth straight month citing high inflation. The central bank's move was along expected lines, but traders hoped for a rate cut after the government initiated big bang reform measures on Friday.
The Sensex traded over 150 points lower from the day's high while the Nifty slipped below the key 5,600 mark. The rupee pared gains and traded at 53.87 to the dollar.
However, the RBI said the government's recent actions paved way for more favourable growth-inflation dynamics though several challenges remain, one of which is persistent inflation. RBI's commentary has raised hopes for a rate cut in October, analysts said.
Markets were unmoved by the surprise 25 basis point cut in cash reserve ratio, which is the amount of money lenders have to keep with the central bank. A cut in CRR will increase liquidity in the economy.
Rate sensitive stocks, especially banks traded off the day's low.
The market breadth weakened though over 60 per cent stocks traded higher on the broader BSE 500.
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