India's central bank stood pat on interest rates on Wednesday, eschewing the market's expectation for a cut as the new demonetization policy continues to play out.

Only 18 of 56 analysts surveyed by Reuters had expected the Reserve Bank of India (RBI) would keep its main policy rate unchanged at 6.25 percent as the country has faced a cash crunch.

A controversial plan from Prime Minister Narendra Modi's government to swap all 500 and 1,000 rupee notes—a combined 86 percent of currency in circulation—with new notes has produced a nation-wide cash crunch amid a limited stock of script, disrupting India's cash-dependent economy.

Several analysts, despite expecting a rate cut, said standing pat may prove "prudent."

"It's a very difficult time for the RBI because there are conflicting signals coming from different parts of the economy," Eswar Prasad, senior professor of trade policy at Cornell University, told CNBC's "The Rundown" on Thursday.

"On the one hand, the demonetization experiment does look like it might have a negative effect on growth in the short run," Prasad said. "But at the same time all the money flooding into the banks right now as people clean out their closets of their cash holdings does pose some risks for inflationary pressures."

Analysts noted that the RBI had other inflation concerns.

The RBI kept its forecast for consumer price inflation of 5 percent at the end of March, which is the end of its fiscal year, compared with 4.20 percent on-month in October, still in line with the RBI's target of within two percentage points of 6 percent.