After opening nearly 300 points higher, the 30-share index gave up all the gains to turn negative after the policy announcement by the Reserve Bank of India (RBI).
After gyrating 770 points during the day, the 30-share Sensex ended 433.56 points, or 1.14 per cent, lower at 37,673.31. It hit an intra-day low of 37,633.36 and a high of 38,403.54.
The broader NSE Nifty plunged 139.25 points, or 1.23 per cent, to close at 11,174.75.
Elsewhere in Asia, Hang Seng and Kospi settled on a negative note, while Nikkei closed in the green. Chinese markets are closed for a holiday.
Equities in Europe were trading lower in early sessions.
Meanwhile, the Indian rupee depreciated 9 paise to 70.97 against the US dollar intra-day.
Brent crude futures, the global oil benchmark, advanced 0.78 per cent to USD 58.16 per barrel.