MUMBAI (Dow Jones)--Indian government bonds ended higher Wednesday after government data showed a softening in non-food manufacturing inflation even though the overall print for February came in above market expectations. The easing in the manufacturing products inflation--an indicator of core inflation--raised expectations among dealers that the central bank may cut its main lending rate at its policy review Thursday. "Despite higher headline numbers, core inflation and core industrial growth is weak, which makes a case for a central bank easing," said Mahendra Kumar Jajoo, chief investment officer for fixed income at Pramerica Asset Managers. The benchmark 8.79% 2021 bond ended at INR103.32 compared with INR103.05. It had swooned to an intraday low of INR102.76 after government data showed that inflation accelerated to 6.95% in February from a year earlier, compared with January's 6.55% increase. The reading overshot the median estimate of 6.75% in a Dow Jones Newswires poll of 16 economists. The RBI is widely expected to keep its lending rate unchanged at 8.50% Thursday. Seventeen of 20 economists polled by Dow Jones Newswires predict no change in the policy rate, while three expect a cut of 25 basis points. "The government should move toward fiscal consolidation in the federal budget to help the RBI in moving toward easing the policy," said Deepak Panjwani, head of fixed income with GEPL Securities. The yield on the 10-year paper should stay in a range of 8.15%-8.30% and may even slip lower if the RBI cuts rates Thursday, he said. In the currency market, the Indian rupee ended flat against the dollar, after a higher opening supported by capital inflows into local stocks. The dollar was at INR49.91 in late trade, compared with INR49.92 late Tuesday. It fell to an intraday low of INR49.82 but a broad global dollar strength and buying by oil importers helped it to recoup losses. "There was almost no fresh position built-up today as traders are cautious ahead of the RBI's rate-setting meeting and the federal budget [due Friday]," a dealer with a state-run bank said. The Bombay Stock Exchange's Sensitive Index rose 0.6% to end at 17,919.30--its highest level since Feb. 24. -By Nupur Acharya, Dow Jones Newswires; +91-22-61456117; nupur.acharya@dowjones.com

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