The Reserve Bank’s Monetary Policy Committee raised the benchmark lending rate by 0.25 per cent for the second time in two months.
The repo rate, at which the central bank lends to other banks, now stands at 6.5 per cent.
The 30-share BSE Sensex, which had rallied to a fresh lifetime high of 37,711.87 in early trade, dived after the RBI announced its policy decision.
It staged a bounce-back in late afternoon session, but finally closed lower by 84.96 points, or 0.23 per cent, at 37,521.62 points.
The gauge had gained 1,110.21 points in the previous seven record-setting sessions.
The broader 50-issue NSE Nifty too slipped from its record high, shedding 10.30 points or 0.09 per cent to end at 11,346.20. Intra-day, it shuttled between 11,390.55 and 11,313.55.
Interest rate sensitive auto, finance and banking stocks finished with losses.
Meanwhile, foreign portfolio investors (FPIs) bought shares worth a net of Rs 572.21 crore, while domestic institutional investors (DIIs) sold equities to the tune of Rs 290.87 crore on Tuesday, provisional data showed.