As widely expected, Reserve Bank of India (RBI) governor Raghuram Rajan kept the repo rate unchanged at 7.25% at Tuesday's meeting.

The central bank has also kept cash reserve rate (CRR) unchanged at 4%.

"The Reserve Bank of India's decision to keep interest rates on hold today does not signal the end of the current loosening cycle. We are forecasting one more 25bp cut in this cycle, which would bring the repo rate to 7.00% by end-2015," said Capital Economics in a note.

Rajan seems to remain cautious over the spike in inflation to eight-month of 5.4% in June and final outcome of monsoon rainfall.

"We had expected that the strong pick-up in inflation in June, to 5.4% y/y, as well as the continued uncertainty over the impact of the monsoon on local food prices, would cause the RBI to stand pat this time round," said the note.

The RBI had cut repo rate by 25bps to 7.25% at its June meeting, its third cut so far this year.

Another key concern for the RBI governor is impending interest rate hike by the US central bank in September.

At its July meeting, the US Federal Reserve has indicated that it is moving closer to raising rates for the first time after keeping them at record low since the financial crisis of 2008.

Recent upbeat economic data in the US has further strengthened expectations that the US Fed would hike rate as early as September, even though it did not any give hint on the timing of rate hikes.

"We continue to have at best modest conviction that the Fed will hike in September," said Scotiabank in a note.

A rate increase by the Fed is expected to lead to heavy outflows from emerging markets like India, resulting in sharp depreciation of local currencies and drastic rise in inflation.

The RBI may need to intervene in the foreign exchange markets in such a scenario, to arrest a possible slide in rupee.