Overnight rates continued to rule firm at 9 per cent on Tuesday. Opening the day at 8.75-9 per cent, higher from its last close at 8.40-8.50 per cent, call rates quoted at these levels for most of the day in a fairly active inter-bank trades. "Lenders seem to have kept away expecting a further tightening in view of the nearly Rs 3,000 crore advance tax payments this fortnight. There are also rumours that the Centre may come out with an auction amounting to around Rs 3,500 crore in this period", dealers said, adding: "There are inflows of nearly Rs 2,800 crore as a result of coupon payments and redemptions by the end of this fortnight". By close of trades, call rates were seen at 8.75-8.90 per cent. The Reserve Bank did not receive any bids for its six-per cent three-day repos held today. The Discount & Finance House of India extended market support to the extent Rs 1,700 crore. Elsewhere, the National Stock Exchange's overnight Mibid and Mibor were pegged at 8.73 per cent (8.63 per cent)and 8.96 per cent (8.80 per cent) with the 14-day ones at 8.74 per cent (8.58 per cent) and 9.41 per cent.

FORECAST: Call rates seen at 8-75-9.05 per cent levels on Wednesday.

Spot Dollar

Sentiment on the rupee turned bearish on Tuesday. The rupee was seen at 43.17/19 levels against the dollar for most of the day, and would have gone lower, but for sustained State Bank dollar sales. Opening the day at 43.17/19 from its last close at 43.16/17, the rupee went to an intra-day low of 43.1950/2050 on good corporate interest for dollars. "A statement issued last night that chances of peace with India is receding following a meeting of military chiefs of Pakistan affected trades today", dealers said. "The rupee could well test 43.25 on Wednesday in early trades", Mecklai Financial Services' senior vice-president, KN Dey, said. At close of trades, the rupee was seen at 43.17/19. Cash/spot closed at 1/1.25 paise (0.75/1 paise) with cash/tom at 0.50/0.6250 paise (0.25/0.50 paise) and tom/spotquoting at 0.50/0.6250 paise (0.25/0.50 paise). The Reserve Bank fixed its reference rate for the dollar at 43.19 against its previous fix of Rs 43.17. Elsewhere, the rupee opened the day at 44.58 (44.17) against the euro, went to an intra-day low of 44.73 (44.97) to close at 44.43 (44.57).

FORECAST: Rupee seen between 43.19 and 43.27 on Wednesday.

Forward Premiums

Forward premiums moved in a fine two to three paise band on Tuesday. The benchmark six-month annualised forward cover closed at 5.05 per cent (5.02 per cent). "There was some receiving in the forwards. The State Bank of India and a few other public-sector banks were seen receiving for November and December", a dealer with a Gulf-based bank said. August dollars closed at 36/37 paise (37/39 paise) with September at 53/54 paise (54/56 paise) with January at 140/142 paise (141/143 paise) and February at 164/166 paise (165/167 paise). "The rupee is under pressure in the spot market. Premiums will go up if there is a weakening tolower than 43.20. Tighter call rates is another factor that could drive premiums higher given the advance tax outflows", dealers said.

FORECAST: Six-month annualised premium seen between 5 per cent and 5.10 per cent on Wednesday; spot-rupee holds key.

Gilts

Bond prices contiuned to hold stable on Tuesday, but spreads bid/ask narrowed down. While the 11.19 per cent 2005 quoted unchanged at Rs 99.26 levels, the 12.32 per cent 2011 was seen at at 102.19/20 levels (Rs 102.17) with the 12.40 per cent 2013 at Rs 101.70-101.72 (Rs 101.71-101.73). "Trades are dull. Tighter call rates at 9 per cent, advance tax outflows, and rumours of another Central government auction, has seen players turn reluctant to take positions", dealers said. The 12.60 per cent 2018 was seen holding its overnight Rs 101.36-101.38 levels. In the medium term papers, the 12.50 per cent 2004 was dealt a shade higher at Rs 104.33-104.35 and 104.36 (Rs 104.31-104.36) with the 11.50 per cent 2004 going at Rs 100.75-100.77 (Rs100.75-100.78).

FORECAST: Bond prices may fall by 1 to 2 paise on Wednesday.