MUMBAI: Indian government bond yields trended lower in early session on Thursday amid high expectations of dovish guidance from the Reserve Bank of India in its last monetary policy decision for the current financial year, with some even eyeing a change in stance.

India’s benchmark 10-year yield was at 7.0483% as of 09:45 a.m. IST, following its previous close of 7.0723%, and before the policy decision due at 10:00 a.m. IST.

“Even though most do expect status quo on rates and stance, with liquidity taking the centrestage, some are betting for a change in stance to neutral, which is pushing bond yields down,” traders with a state-run bank said.

The RBI is expected to hold its key interest rate steady, according to a Reuters poll, while the commentary from the policymakers will be in focus amid easing inflationary pressures and a fiscally prudent federal budget announcement last week.

Guidance on banking system liquidity has also become crucial after the central bank moved to withdraw cash from the banking system since the start of this month.

The RBI has conducted two separate overnight variable reverse repo rate auctions in the last two sessions, following four-day VRRRs earlier.

India bond yields dip on bullish momentum in run-up to RBI policy decision

The government’s tight fiscal policy for the next financial year could push the country’s central bank to ease its stance on liquidity in the coming months, said Neeraj Gambhir, treasury head of Axis Bank.

“The change in stance would provide the Monetary Policy Committee the needed flexibility to anchor the overnight rates closer to the policy repo rate,” Siddharth Kothari an economist with Sunidhi Securities said.

He expects the policy stance to be changed to neutral but that need not be inferred as any signalling to the main policy repo rate.

Following the policy, traders would await fresh debt supply via the weekly auction on Friday.

The central bank aims to raise 330 billion rupees ($3.98