(Reuters) - Indian shares edged lower on Tuesday, pausing after a three-day rally, as investors booked profits after the central bank kept its policy interest rate unchanged, as was widely expected.
Outgoing Reserve Bank of India Governor Raghuram Rajan kept both interest rates and the cash reserve ratio on hold, leaving it to his successor to decide if inflation is subsiding enough after the monsoon season to make a cut.
"Policy was in line with our expectations. It was Rajan's last policy and we weren't expecting anything dramatic given what the target for inflation and growth is," said Sanjeev Bhasin, executive VP - markets at India Infoline.
Expectations are running high, however, for a 25 basis point cut in the repo rate to 6.25 percent in the final three months of this year.
"We expect the new governor now to definitely cut rates in the next policy by around 25 basis points because I expect second-half should play out on account of moderating inflation post good monsoon," Bhasin said.
As of 0604 GMT, the broader NSE Nifty was down 0.18 percent at 8,695.30, while the benchmark BSE Sensex shed 0.15 percent at 28,170.41.
Both the indexes dropped as much as 0.45 percent earlier in the day and are set for their first drop in four sessions.
Meanwhile, the rupee weakened to 66.89 per dollar, after closing at 66.84 on Monday.
Lenders such as State Bank of India and ICICI Bank gained 1.8 percent and 1 percent, respectively, with the Nifty Bank index up 0.23 percent.
Car maker Tata Motors was up 0.4 percent after global wholesales in July, including Jaguar Land Rover, rose 20 percent.
Idea Cellular fell 5 percent after India's 3rd largest telecom company on Monday posted a 74 percent slump in June-quarter consolidated profit.
(Reporting by Aastha Agnihotri in Bengaluru; Editing by Biju Dwarakanath)
