MUMBAI, April 13 Reuters The Indian rupee advanced on Thursday after U.S. inflation cooled, while Federal Reserve officials flagged risks to the economy, which compounded troubles for the dollar index.

The rupee traded around 81.96 per dollar by 1041 a.m. IST compared to 82.0775 in the previous session.

U.S. Consumer Price Index CPI climbed 0.1 last month after advancing 0.4 in February. Economists polled by Reuters had forecast the CPI gaining 0.2 in March.

However, core CPI remained elevated, which analysts warned could be a cause for concern.

Moreover, minutes from the Fed39;s March meeting revealed worries among members regarding the banking crisis, with staff projections of a mild recession later this year.

That sent the dollar index down 0.6 overnight, while U.S. bond yields dropped in anticipation of Fed rate cuts.

Futures showed the expectations of a 25basis point bps hike from the Fed next month were near 71, with that likely being the final hike before rates are cut from July onwards.

Concerns about growth, rather than inflation, are likely to keep central bankers busy over the next 12 months, said Anindya Banerjee, head of research FX and interest rates at Kotak Securities.

With inflation down and the economy stagnating, central banks may not be able to ignore the need for lower interest rates for much longer and the markets have started to factor that in. Hence, the dollar may continue to be pressured, he added.

The rupee39;s gains during the day…