The rupee hit a more than 1-1/2 year high as the central bank held its policy rate and expressed concerns about inflation, raising expectations it would no longer cut rates this year, while bonds fell and shares edged lower.

The Reserve Bank of India had held the repo rate at 6.25 per cent on Thursday, as widely expected, and raised its inflation forecasts, increasing expectations it could even tighten should prices accelerate.

Before the meeting, 21 of 34 economists had predicted stable prices would allow the RBI to cut rates this year.

The rupee strengthened to as much as 64.32 per dollar, its highest since August 2015, after also rallying on Thursday. It was last trading at 64.41 compared with Thursday's close of 64.52.

The domestic unit hovered in a range of 64.65 and 64.33 in the afternoon trade.

Bonds extended falls, with sentiment also hit after the RBI said it would start curbing excess liquidity after the government's move to withdraw higher-value bank notes from circulation led to a surge in bank deposits.

The benchmark 10-year bond yield rose 5 basis points to 6.82 percent after rising 12 basis points on Thursday.

“We do not expect any more rate cuts given (that) the journey to 4 percent inflation remains challenging. Yet we believe that weaker than expected growth will not allow the RBI to start increasing the policy repo rate over 2017,” HSBC said in a note to clients.