After catching markets off guard with an unscheduled rate cut last month, the Reserve Bank of India's (RBI) rate decision on Tuesday is a close-call.
On one hand, the RBI may want to take advantage of the suitable backdrop of lower inflation and market stability to deliver an additional rate cut, say economists.
On the other hand, the central bank may want to wait until the presentation of the budget on February 28 to gauge the government's commitment to fiscal consolidation and reform before easing further.
"The decision to lower or hold is likely to be a close one," Radhika Rao, economist at DBS Bank wrote in a note.
On January 15, the central bank cut its key repo rate by 25 basis points to 7.75 percent in an off-cycle policy move, citing declining price pressures. It was the first cut since March 2013.
India's annual consumer price inflation fell to 4.38 percent in November, its lowest level since the government started releasing the data in 2012, before ticking up to 5 percent in December. Lower oil prices and softer food costs have contributed to cooling inflation.