CAll Money
Call rates rose slightly in early trade on strong demand from banks looking to invest in the twin-bond auction scheduled for Wednesday. However, rates eased, once demand thinned amid comfortable liquidity. The call ended around its notional level—the Reserve Bank of India’s (RBI) 7% refinance rate. “Demand was strong basically from a few foreign and private banks ahead of the auction,” a primary dealer said. Opening the day at 7.00-7.25%, call rates eased to around owing to ample liquidity. Call rates closed at 6.90-7.00%. Liquidity in the banking system may tighten owing to the outflow of Rs 6,000 crore from the twin bond on Wednesday. According to market players call has been ruling easy despite strong demand mainly due to ample liquidity. Elsewhere, the National Stock Exchange (NSE) pegged its overnight Mibid and Mibor at 7.03% and 7.20% respectively.
FORECAST: Call rates seen firm on Thursday due to auction drain.

Spot Dollar
The rupee erased its losses seen early Wednesday to end stronger against the dollar owing to consistent dollar supplies from state-run banks. The persistent dollar supplies from state-run banks spurred liquidation of long dollar positions by other banks. Earlier, the rupee had weakened to 47.1600/1800 levels as banks built up long dollar positions after the down grade by S&P. The rupee’s fall was capped at 47.1800 on strong supplies of the dollar by state-run banks. The rupee move in a wide range of 47.1100-47.1800. Volumes were good in early trade but thinned in afternoon trade. Opening the day at 47.1600, lower compared with its previous close, the rupee weakened further to an intra-day low of 47.1800. However, it recovered to close at 47.1100 amid ample dollar supplies. Meanwhile, the RBI fixed its reference rate for the dollar at 47.14 as against its previous fix 47.11.
FORECAST: The rupee seen range-bound on Thursday.

Forward Premiums
Forward premia opened higher tracking the weak rupee and firm inter-bank call rate. Banks bought forward dollar at open on the back of a weakness in the rupee but few banks also received interest in mid session which kept premiums in a narrow range. However, not much selling of forward dollar was seen on expectation of a temporary tightening of liquidity following government securities auction scheduled on Wednesday. The benchmark six-month annualised premium closed at 4.80% (4.78%) with the annualised one-year premium closed at 4.80% (4.78%). Cash/tom traded at 0.95/1.00 paise while cash/spot traded at 0.47/0.52 paise. In month-wise premiums, August dollar traded at 12.00/12.50 paise, while in the far forwards, January dollar traded at 106.5/107.5 paise with July dollar at 222/223 paise.
FORECAST: Forward premiums seen in a narrow range post
auction on Thursday.

Gilts
Government securities rebounded from its Tuesday’s levels on bargain-buying seen at lower levels. GoI-Sec prices had dropped in late trade Tuesday on reports of a downgrade by rating agency Standard & Poor’s downgrade of India’s long-term local currency rating to “BBB-” from “BBB”. Market sentiment also got a boost after RBI Governor’s statement reiterating softer basis on interest rates. Trade was choppy with profit-sales and bargain-buying taking turns, but quiet ended ahead of the of the auction scheduled for later Wednesday. The RBI got no bids at its 1-day repo, reverse repo auction Wednesday. The 11.50% 2011 paper was seen at
Rs 114.25 from Rs 113.70 earlier. On the NSE’s wholesale debt segment, trades worth Rs 3,652 crore were seen. Trades worth Rs 1,075 crore were seen in the 11.50% 2011A paper, while those in the 11.40% 2008 and 11.03% 2012 amounted to
Rs 535 crore and Rs 1,005 crore respectively.
FORECAST: Prices seen firm on Thursday.

(Compiled by Srikesh P. Menon)