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but with that logic... you don't want to level up because monsters level up..
then....... err. why level up at all in the entire game.?
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Your ability to meet challenges is determined by more than your level. To be specific, in Arnika you can gain two RPCs, access four vendors who have some low-level spells and high-level weapons for sale, and fight with wandering monsters taking your side.
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is this only at this point of the game?
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Well, there are other places where you would enjoy spending time there at level x but not at level x+1, but other than this one time you have options of other places to go.