Overnight rates ruled firm on Wednesday. Opening the day at 8-8.10 per cent, call rates quoted in the same band throughout the day. Towards close of trades, call rates spurted briefly to 8.20 per cent to finish at 8.10-8.20 per cent thereabouts. "Demand for funds was on the lower side today. The general trend remained squarish. Most of the deals were done at 8.05 per cent levels", dealers said. The Discount & Finance House of India extended market support to the tune of Rs 2,000 crore. "Call rates are seen holding 8-8.15 levels in the current fortnight. Inflows of Rs 1,730.92 crore are expected on account of dated-stock redemptions and interest payments", dealers said.

Elsewhere, the National Stock Exchange pegged its overnight Mibid and Mibor rates at 8 per cent (8.02 per cent) and 8.09 per cent (8.11 per cent) with the 14-day one at 8.37 per cent (8.42 per cent) and 8.96 per cent (9 per cent) respectively.

FORECAST: Call rates seen at 8.05-8.10 per cent levels on Thursday.

SpotDollar

The rupee went to an intra-day low of 42.8450 against the dollar as news of air strikes against infiltrators from Pakistan in Kashmir impacted on the market. Opening the day at 42.74/75 from its last close at 42.7450/7550, the rupee weakened to 42.79/81 on fears that the air strikes could lead to a retaliatory strikes from Pakistan. "Corporates and banks were seen actively bidding for dollars in early trades", dealers said. In later day trades, the rupee went to 42.8450 before recovering to close at 42.8450/8350. "Corporates and banks appear to have used the rupee's fall today to book profits given that the rupee has been holding firm for some time now", a dealer at a European bank said. Cash/spot went unchanged at 0.75/1 paise with cash/tom and tom/spot at 0.25/0.50 paise (0.37/0.50 paise). "The first half an hour will be crucial on Thursday. The rupee will touch 43 to a dollar on Thursday if the situation on the border worsens", Mecklai Financial Services senior vice-president, KN Dey, said.

The Reserve Bank of India pegged its reference rate for the dollar at Rs 42.81 as against its previous peg at 42.74. Meanwhile, the Indian currency opened at 45.27 against the euro, weakened to an intra-day high of 45.41 to finally close at 45.21.

FORECAST: Rupee may touch 43 levels on Thursday; improvement on border may see recovery to 42.75/77.

Forward Premiums

Forward premiums went higher on Wednesday as reports of air strikes on the Kashmir border hit the market. The six-month annualised forward cover quoted at 5.35 per cent (5.15 per cent) as corporates and banks bid for forward dollars. Forward premiums tracked the spot rupee, but trades were thin. "There was a bit of covering by corporates in the near terms, and premiums across all maturities opened 5 paise higher. In the long terms, premiums went softer by close of trades on receiving by the State Bank of India, and a few other state-run banks", dealers said.

The State Bank reportedly received for November and December. June dollarsclosed at 17/19 paise (15/16 paise), July at 34/36 paise (31/32 paise) and August 54/55 paise (50-51 paise). In the far forwards, January went at 165/168 paise (160-162 paise), February at 190/193 paise (184-186 paise) with March at 216/219 paise (210-213 paise).

FORECAST: Six-month annualised forwards seen at 5.35-5.40 per cent levels on Thursday.

Gilts

Security prices fell in intra-day trades by 20 paise on news of air strikes against infiltrators in Kashmir after a short burst of buying at start of trades. "Bond prices fell as market players offloaded their holdings", a bond dealer with a PD said. The 12.40 per cent 2013 went to Rs 102.05 levels, but fell to Rs 101.85-101.86 (Rs 101.93/101.95) while the 12.32 per cent 2011 paper opened at Rs 101.57 went higher Rs 102.73 before finishing at Rs 101.52 (Rs 102.30-102.35). "Bond prices rose in early trades and closed lower or slightly nearer to theironvernight finishes.

There was no selling pressure as such, but bids were on the lower side", abond dealer at a European bank said. The 11.99 per cent 2009 was dealt at Rs 101.52 levels (Rs 101.52-101.54). The Reserve Bank of India's sale list was unchanged with the 12.60 per cent being offered at Rs 101.40.

FORECAST: Bond prices may fall on Thursday if situation on border worsens.