MUMBAI - Indian government bond yields ended little changed on Friday after the central bank kept its policy rate and stance unchanged as expected and maintained the inflation forecast for the financial year.

The benchmark 10-year yield ended at 7.0168%, following its previous close at 7.0112%. The yield rose three basis points (bps) this week after falling two bps in the previous one.

The Reserve Bank of India (RBI) kept its key interest rate unchanged at 6.50% for the eighth consecutive time in a widely expected move as robust economic growth continues to provide space to focus on bringing down inflation to its medium-term target of 4%.

Two policymakers voting for a rate cut of 25 bps and a change in stance from "withdrawal of accommodation" to "neutral" bodes well for softer interest rates moving forward, Prashant Pimple, CIO Fixed Income, Baroda BNP Paribas Mutual Fund said.

The RBI raised its growth forecast for the current financial year to 7.2% from 7% earlier but retained the inflation estimate at 4.5%.

Bond yields had shot up earlier this week after a weakened mandate for Prime Minister Narendra Modi's party and alliance raised concerns about a potentially slower pace of fiscal consolidation.

"The market will now look forward to the budget and how does the government pave the way for fiscal consolidation," Pimple said.

A weaker majority for the Modi-led alliance may increase welfare spending but not result in additional borrowing, limiting a rise in bond yields, said Rajeev Mohan, president of treasury and global markets at Kotak Mahindra Bank.

Market participants now await domestic and U.S. inflation prints and the outcome of the Federal Reserve's policy meeting next week, when Fed officials will update their economic and interest rate projections.

(Reporting by Bhakti Tambe; Editing by Mrigank Dhaniwala)