Benchmark indices pared early losses, with the Sensex jumping 317 points in morning trade on Wednesday, after the RBI retained its growth projection at 7.2 per cent for current fiscal year on the back of improvement in urban demand and gradual recovery in rural India.
The 30-share BSE benchmark rallied 316.63 points to 55,423.97 in morning trade. The broader NSE Nifty was trading with a gain of 97.95 points at 16,514.30.
Unveiling the third monetary policy for 2022-23, RBI Governor Shaktikanta Das said the Indian economy remained resilient, and the central bank will continue to support growth.
RBI on Wednesday raised the interest rate by 50 basis points to a two-year high of 4.9 per cent as it doubled down to tame inflation that has surged in the last couple of months.
The rate hike comes on the back of a 40 basis points increase effected by RBI at an unscheduled meeting on May 4.
From the Sensex pack, Bajaj Finance, State Bank of India, Bajaj Finserv, Tata Steel, NTPC, HDFC Bank and Kotak Mahindra Bank were the major gainers.
In contrast, Reliance Industries, Bharti Airtel, Nestle, Asian Paints, HUL and ITC were among the laggards.
"RBI's projections of GDP growth rate of 7.2 per cent and inflation of 6.7 per cent for FY23 reflect a realistic monetary policy. The higher inflation projection indicates that the central bank recognises the seriousness of inflation and the 50 bps repo rate hike is a message that they are determined to anchor inflation expectations.
"The Governor's remark that the economy remains resilient and recovery has gathered momentum, is bullish from the market perspective," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Elsewhere in Asia, markets in Seoul, Tokyo and Hong Kong were trading in the green, while Shanghai quoted lower.
Stock markets in the US had ended with gains on Tuesday.
"In line with the expectation, RBI has increased the repo rate by 50 basis points and is already discounted by the market," said Ravi Singh, Vice President and Head of Research, Share India.
Meanwhile, international oil benchmark Brent crude jumped 0.34 per cent to USD 120.97 per barrel.
Foreign institutional investors offloaded shares worth Rs 2,293.98 crore on Tuesday, according to stock exchange data.