Overnight rates softened to close at 8-8.50 per cent on Tuesday after days of hovering at 10 per cent and above. Opening the day at 9-9.25 per cent from its last close at 9.50-9.75 per cent, call rates eased in later day trades to below 9 per cent on increased liquidity. "The Reserve Bank's dollar purchases has improved liquidity. After days of poor response to the Reserve Bank's 6 per cent fixed-rate repos, a single bid of Rs 100 crore was seen today.

Demand for funds has slackened ahead of the Reporting Friday", a dealer with a US-based bank said. Most of the deals were struck at around 9-9.05 per cent levels. At close of trades, call rates were seen at 8-8.50 per cent. The National Stock Exchange's overnight Mibid and Mibor rates were pegged at 9.03 per cent (9.93 per cent) and 9.18 per cent (10.20 per cent) with the 14-day ones at 9.01 per cent (9.27 per cent) and 9.66 per cent (10.07 per cent) respectively.

FORECAST: Call rates seen at 9.75-8.25 per cent levels onWednesday.

Spot Dollar

The rupee held firm against the dollar on Tuesday. Opening the day at 42.7250/7350 from its last close at 42.7275 levels, the rupee ruled in a fine 2 paise band throughtout the day. "Dollar demand is poor, but supplies are good. Had it not been for the Reserve Bank of India dollar purchases, the rupee would have appreciated to above 42.71 levels", a dealer with a brokerage said.

By close of trades, the rupee was seen at 42.73/7350. Cash/spot went at 0.75/1 paise (1/1.25 paise), cash/tom at 0.37/0.50 paise (0.50/0.62 paise) with tom/spot unchanged at 0.50/0.62 paise. The Reserve Bank of India pegged its reference rate for the dollar at 42.73 against its previous fix of 42.74. Elsewhere, the Euro opened at 45.47 (45.76) against the rupee, went to an intra-day high of 45.72 (45.64) before closing at 45.65 (45.56).

FORECAST: Rupee seen at 42.72/74 levels on Wednesday.

Forward Premiums

Forward premiums softened on Tuesday across all maturities. The six-monthannualised forward cover was sharply lower at 5.20 per cent (5.50 per cent). "Premiums opened lower in the morning, and continued to go softer. Slightly softer call rates, and receiving by a few banks helped premiums cool off. The Reserve Bank of India reportedly sold in the forwards", dealers said. In the near terms, June dollars were seen at 19/20 paise (22/23 paise) with July at 37/38 paise (42/43 paise) and August at 56/58 paise (63/64 paise). In the longer maturities, December dollars went at 139/141 paise (147/149 paise) with January at 165/167 paise (174/176 paise). "A firm spot rupee, and the Reserve Bank's spot-dollar purchases have led to quite a few banks and corporate selling dollars. Sentiment in the forwards have changed on account of this", a dealer with a brokerage said.

FORECAST: Six-month annualised forward cover seen at 5.20-5.30 per cent levels on Wednesday.

Gilts

Bond prices went a wee bit higher on Tuesday in line with relatively softer call rates. "Interest is more in themedium to longer-dated securities. Quotes were not wide as on Monday" a bond dealer with a US-based bank said. The 12.50 per cent 2004 was dealt at Rs 104.42-101.44 (Rs 104.40-104.43) with the 11.68 per cent 2006 going at Rs 100.97-101.00 (Rs 100.94-100.97). The long-dated 12.40 per cent 2013 paper was dealt at Rs 101.24-101.27 (Rs 101.24-101.26) with the 11.32 per cent 2011 going at Rs 101.91-101.92 (Rs 101.89-101.91). In the short-term papers, the 11.40 per cent 2000 went at Rs Rs 100.88-100.89 (Rs 100.86-100.89); the 11.55 per cent 2001 quoting wide between Rs 101.26-101.29 (Rs 101.23-101.29); and the 11.75 per cent 2001 at Rs 101.67-101.68 (101.66-101.68).

FORECAST: Medium to long-dated bonds may gain a bit on Wednesday.