RBI also pegged March-end inflation at 7 per cent, up from 6.5 per cent earlier.
The BSE 30-share barometer, which had added 55 points in opening trade, fell by 84.29 points at 17,059.39 at 1217 hrs, triggered by a slide in interest rate sensitive banking, auto realty stocks.
Similarly, the National Stock Exchange index Nifty was down 29.3 points at 5,170.5.
Among the sectoral indices, the BSE bankex was down 1.31 per cent at 11,786.47; auto index was trading down 0.69 per cent at 9,015.83 and realty index lost 0.73 per cent to 1,606.88.
As a liquidity inducing-measure, however, RBI brought down the Statutory Liquidity Ratio (SLR), the amount of deposits banks park in government bonds, by per cent to 23 per cent, effective August 11.
The key lending (repo) rate, at which banks borrow from RBI, has been retained at 8 per cent. The Cash Reserve Ratio, which is the amount of deposits parked by banks with RBI, has been kept at 4.75 per cent.