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Rupee Drops, Can Hurt India’s Economic Recovery

The Reserve Bank of India cut its key repurchase rate by 50 basis points to 8 percent in April and that move was followed by unexpected increase of inflation to 7.23 percent. Now the central bank is in a difficult position as without rate cuts the currency will continue to weaken, leading to growing inflation, but low borrowing costs may also boost inflation. Analysts estimated that gross domestic product increased 6.7 percent in March 2012 from a year ago, demonstrating the slowest rate of growth since March 2009.

USD/INR rose from 55.3750 to 55.1862 as of 18:49 GMT today.

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