Indian shares rose on Friday as rate-sensitive banking stocks climbed, while the rupee and bond yields firmed after the Reserve Bank of India (RBI) hiked its key policy rate for the third time in the current cycle.

The RBI's Monetary Policy Committee (MPC) raised the repo rate by 50 basis points to 5.40%, as the central bank sought to tame persistently high inflation in Asia's third-largest economy.

"With inflation expected to remain above the upper tolerance threshold in Q2 and Q3 of the current financial year, the MPC stressed that sustained high inflation could de-stabilise inflation expectations and harm growth in the medium term," RBI Governor Shaktikanta Das said.

The MPC retained its GDP growth projection for 2022-23 at 7.2%, and its inflation forecast was also unchanged at 6.7%.

India's annual consumer inflation remained above the 7% mark in June and beyond the RBI's upper tolerance limit of 6% for a sixth month in a row.

The NSE Nifty 50 index rose 0.44% to 17,458.95 by 0558 GMT, and the S&P BSE Sensex advanced 0.49% to 58,585.14.

Nifty's finance, public sector bank index and bank index scaled between 0.8% and 1.4%.

"The policy decision was largely in line with what the market was expecting. Markets have moved to a large extent in the last few weeks and will be consolidating based on local macro and global data points and geopolitics," said Mayuresh Joshi, head of equity research for India at William O'Neil in Mumbai.

"There were lot of positives in the governor's speech, including accomodative stance going forward, retainment of GDP forecast for FY 2022-23, pick-up in bank credit, and private capex," Joshi said.

India's 10-year benchmark bond yield rose to 7.25% after the policy decision, while the rupee was trading at 79.0525 per dollar.

The RBI had caught markets off guard with a 40 bps hike at an unscheduled meeting in May, followed by 50 bps increase in June, but prices have shown little sign of cooling off yet. (Reporting by Rama Venkat and Nallur Sethuraman in Bengaluru; Editing by Shounak Dasgupta and Uttaresh.V)