"The monetary policy committee (MPC) of the Reserve Bank of India left the repo rate at 6.50 percent while reiterating its target of keeping consumer inflation at 4.00 percent in the medium term on a "durable basis".
The consumer price index (CPI) inflation rate for September 2018 stood at 3.77 percent against August's 3.69 percent, on higher food and fuel costs, and pushed up by a battered rupee.
Factory output growth slipped to a three-month low of 4.3 per cent in August due to a sharp slump in mining output growth and moderation in primary goods output, alongside the impact of a high base.
According to the central bank, a 20 percent increase in the price of the Indian basket of crude to $96 a barrel would dent growth by 30 basis points and stoke inflation by 40 basis points.
For September, the median forecast of economists polled by Reuters was 4.00 percent, with estimates ranging from 3.60 percent to 4.70 percent.
Housing inflation stood at 7.07 percent in September 2018, down from 7.59 percent in August 2018.
India's headline inflation data is subdued for now, but there are mounting risks that are hard to ignore: a currency at a record-low, high oil prices, and looming elections that's prompting the government to raise food prices to placate farmers. Primary goods output also slowed to 2.6 per cent in August from 6.7 per cent a month ago and 7.1 per cent in August previous year.
Food inflation rose to 0.51 percent from a year earlier, against 0.29 percent in August.
Analysts said recent rates hikes and a weakening rupee, which has lost about 13 percent this year against the dollar, could hurt growth prospects in the second half of the fiscal year ending in March 2019.
"Given the massive depreciation of the rupee and elevated crude oil prices, RBI will have to resort to policy rate signals sooner than later".
Clothing and footwear inflation was at 4.64 percent, in comparison to 4.88 percent in August 2018. The RBI last week held interest rates unchanged, surprising many market watchers who anticipated a third consecutive hike, but shifted its stance from "neutral" to "calibrated tightening" in a nod to pricing pressures.
"We do not think that the RBI's rate-hike cycle has come to an end", said Sujan Hajra, chief economist at Anand Rathi Financial Services Ltd.