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Will the RBI pull the trigger again on Tuesday?

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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.

Rao's main scenario is for the central bank to wait until after the presentation of the budget on February 28 to ease further, predicting 25 basis point cuts in April and June.

However, there's a risk that the RBI front-loads rate cuts to its February meeting given appropriate market conditions and a resilient rupee, she said.

"The rupee has been an outperformer compared with the other Asian and emerging market peers, providing the headroom for further easing," Rao said.

The rupee factor

The rupee is among the world's best performing currencies this year, strengthening 1.6 percent against the U.S. dollar thanks to a narrowing trade deficit and strong foreign inflows into local equities.

Shilan Shah, India economist at Capital Economics agrees that rupee strength supports the case for policy loosening.

Read MoreIndia central bank surprises with unscheduled rate cut

He expects a repo rate cut of 25 basis points to 7.50 percent at Tuesday's policy review.

"Of course, there are risks to the outlook for the rupee. The currency could come under renewed pressure if commodity prices were to rally, or if foreign investors were to withdraw from local equity markets. Nevertheless, its current stability is another reason to expect the RBI to loosen policy further following its rate cut at an unscheduled meeting earlier this month," said Shah.

Not so fast

Rahul Bajoria, economist at Barclays doesn't expect the central bank will commit to two interest rate cuts in the span of three weeks.

First off, the RBI doesn't have additional information regarding inflation since its surprise rate cut, he said. Secondly, it will be looking for fiscal consolidation measures in the budget before committing to further monetary easing.

"If the budget is along expected lines and inflation stays low, risk of another inter-meeting cut post-budget cannot be discounted," he said. "We are currently expecting another 50 basis points of cuts in 2 tranches in 2015."