The Indian central bank unexpectedly left its repo rate unchanged at 6.50% in a 5-1 vote, but signaled that it may raise rates in the future following two consecutive hikes in June and August.

The Reserve Bank of India kept its reverse repo rate unchanged at 6.25% and maintained the marginal standing facility and the bank rates at 6.75%. The central bank changed its monetary policy stance to "calibrated tightening" from "neutral," which has been its stance since February 2017.

The rupee dropped immediately following the decision at 5 a.m. ET on Oct. 5, before paring losses against the dollar. It was broadly stable as of 7:18 a.m. ET.

The year-over-year inflation rate fell to 3.7% in August from 4.9% in June due to a sharp deceleration in the rise of food prices. The RBI, which is targeting inflation of 4%, plus or minus 2%, over the medium term, expects inflation at between 3.9% and 4.5% in the second half of the fiscal year ending March 31, 2019.

"The unchanged decision suggests that the RBI is not overly concerned about [rupee] depreciation," said Mitul Kotecha, senior emerging markets strategist at TD Securities. The rupee has dropped more than 13% against the dollar so far in 2018.

As of Oct. 4, US$1 was equivalent to 73.82 Indian rupees.