Indian government bond yields plunged on Thursday, tracking a sharp fall in U.S. peers after the Federal Reserve maintained its outlook for three rate cuts this year.

A surprise rate cut from the Swiss National Bank, making it the first major central bank to dial back tighter monetary policy conditions, also boosted sentiment.

The benchmark 10-year yield ended at 7.0477%, following its previous close of 7.0918%.

U.S. bond yields eased on Wednesday and extended their fall in Asian hours on Thursday as the Fed said it still anticipates cutting interest rates based on its updated economic projections.

Fed Chair Jerome Powell's outlook for price pressures was steady even after the unexpected strength in recent inflation data.

The U.S. central bank revised its projections for the GDP and core personal consumption expenditure upwards for the October-December period and still retained three rate cuts.

"This suggests the Federal Reserve is likely to tolerate higher inflation in the near term to help soft landing in the U.S. economy," said Deepak Agrawal, chief investment officer of debt at Kotak Mahindra AMC.

"The Fed would continue to remain data dependent and we believe it is likely to begin cutting rates in the middle of 2024."

Powell said the timing of rate cuts in 2024 will depend on more certainty over inflation declining towards the 2% target.

The odds of a cut in June have risen to 75% from 59% before the Fed decision, according to the CME FedWatch tool.

"With the Fed remaining on the sidelines, the Reserve Bank of India will have to remain on the guard too. With the twin deficits well under control, the RBI gets the option to wait and watch too," Anitha Rangan, an economist at Equirus Group, said.

The RBI has kept its interest rate steady at 6.5% during the past six policy meetings and indicated it would consider rate cuts only when retail inflation eases closer to the 4% target on a sustainable basis.

(Reporting by Bhakti Tambe; Editing by Sohini Goswami)