UPDATE 1-Indian bonds flat as RBI statement disappoints; OIS rates drop

* India's 10-yr bond yield flat at 7.87 pct after rate decision

* 1-yr OIS falls 5 bps to 7.54 pct from pre-decision levels

* RBI cuts repo rate, also cuts CRR (Updates with details, background)

MUMBAI, Jan 29 (Reuters) - Indian benchmark 10-year bond yields were unchanged even after the country's central bank cut interest rates by a quarter percentage point, with its cautious stance on future policy disappointing investors.

The Reserve Bank of India did manage to surprise investors by cutting the cash reserve ratio, a key liquidity tool, sending overnight index swap rates lower, but investors were cool on a move they saw as likely to reduce the central bank's bond purchases via open market operations (OMOs).

India's government bonds have rallied since last month on anticipation the RBI would deliver up to 100 bps of rate cuts this year, an outcome now more in doubt after a statement that still reflected concerns over inflation and the government's fiscal stance.

"In terms of guidance there maybe another 25 basis points cut in the repo rate in March, but the policy is finely balanced. There are upside risks to inflation and it is not a given that a rate cut will happen in March," said A. Prasanna, an economist at ICICI Securities Primary Dealership in Mumbai.

The 10-year benchmark bond yield was flat at 7.87 percent from levels before the decision, and was up 1 bp from its Monday close.

Bond yields had dropped 28 bps since Dec. 21 on expectations easing wholesale price inflation - which fell in December to a three-year low - would spark aggressive interest rate cuts. The RBI last cut interest rates by 50 bps in April 2012.

The central bank made clear on Tuesday that further easing would be contingent on how the government tackles its fiscal and current account deficits, and on the outlook for inflation.

Overnight index swaps (OIS) showed a bigger reaction after the central bank cut the cash reserve ratio by 25 bps, or the amount of cash deposits lenders must keep with the RBI.

The 1-year overnight index swap (OIS) rate fell 5 basis points (bps) to 7.54 percent from levels before the decision, and was down 2 bps on the day. The 5-year OIS rate fell 3 bps to 7.14 percent from levels before the rate decision.

The CRR cut is expected to inject 180 billion rupees ($3.34 billion) into the banking system, providing some relief to the cash-strapped banking sector.

Bank borrowings from the central bank have remained at near 1 trillion rupees this month, far above the RBI's comfort level of around 600 billion rupees deficit.

The stress on liquidity - caused largely by the absence of government spending - has kept the OIS curve inverted, meaning the 1-year OIS rate is trading above the 5-year.

The RBI has injected liquidity via OMO bond purchases since it last cut the CRR on Oct 31, though analysts doubted whether the central bank will now continue to do so in February. ($1 = 53.9050 Indian rupees) (Reporting by Rafael Nam and Subhadip Sircar; Editing by Eric Meijer)