The 30-share index, which had gained almost 400 points in opening trade, made further headway to quote 577.73 points, or 1.75%, higher at 33,596.80 at closing. The gauge had lost 351.56 points in the previous session.
HDFC Bank's chief economist Abheek Barua, however, feels that it was "an unexpectedly dovish policy with the RBI highlighting inflation risks (oil, procurement prices, HRA for government employees) but at the same time revising their forecasts downward".
The renewed fears of a trade war between the USA and China spooked the Indian market.
Indian stock markets had rallied sharply on Thursday after the Reserve Bank cut its inflation forecast for the first half of this fiscal and also deferred until next year a new accounting standard for the country's banks that would have led to higher bad-loan provisioning requirements.
"Policy was in consonance with the neutral stance and limited the chances of rate hike in the near term due to favourable domestic triggers and consequent decline in yield".
On a weekly basis, the BSE Sensex scored a smart gain of 658.29 points, or 1.99 percent while the NSE Nifty rose 217.90 points, or 2.15 percent. The Reverse Repo rate now remains unchanged at 5.75%. State Bank of India was the top gainer, surging 4.66%.
Nifty Bank, Auto, Metal and Realty were up 2-4 percent. Meanwhile, the Nifty was trading higher by 189.80 points or 1.87% at 10,318.20 with 46 components gaining.
Markets in Japan and Australia clung on to marginal gains but China, Hong Kong and South Korea dipped into the red, delivering a mixed picture across the region. In the Eurozone, Frankfurt's DAX gained 1.80 per cent and Paris CAC advanced 1.73 per cent in early deals.
Nasdaq closed in green, up by 1.43 per cent while FTSE 100 was also up by 0.05 per cent at the closing on Wednesday.