* 10-year yield flat at 7.86 pct
* Repo bids rise to 632.95 bln rupees, the highest in 3 sessions
* Major Asian central banks keep rates on hold
By Subhadip Sircar
MUMBAI, March 7 (Reuters) - Indian government bond yields ended flat on Thursday as traders shifted focus to key inflation data due next week for cues on the central bank's policy decision later this month.
A lower-than-expected headline reading and low core inflation for February will cement expectations of a rate cut at the Reserve Bank of India's March 19 review, the second such rate cut in 2013.
Continued weakness in the economy and the government sticking to its fiscal deficit targets have also helped in firming up expectations of a rate cut.
A rate cut and a benign outlook on interest rate may provide bond markets the trigger to rally after the high borrowing numbers spelt out in the budget put a hold on a rally that began in late December.
RBI is expected to be the only major central bank in the region to cut rates this year even as Bank of Japan, Indonesia and Malaysia kept rates on hold on Thursday.
"With an expected rate cut round the corner, introduction of few more new benchmarks and clarity over withholding taxes, we see the rally to remain in force up till April'13-end," said Shakti Satapathy, a fixed income analyst with AK Capital.
The benchmark 10-year bond yield ended flat at 7.86 percent.
It traded in a tight 7.85-7.87 percent band during the session with trading volumes at average 236.75 billion rupees.
The cash deficit in the banking system showed some worsening but still remained within the central bank's tolerance level.
The one-year OIS ended 2 basis points higher at 7.58 percent, while the five-year OIS closed 1 basis point up at 7.21 percent. (Editing by Subhranshu Sahu)