The overnight rate eased to close at 10-10.25 per cent on Monday owing to improved money supply and relatively lower demand at the interbank market. Call rates opened higher at 11-11.25 per cent, unchanged from their previous close. According to money market sources, the rates ruled firm in the morning on good demand for funds from some participants, fearing further tightening due to advance tax outflow.

Towards the close, the rates eased as demand for funds dipped. The rates finally settled at 10-10.25 per cent towards the close as against the previous close of 10.6-10.8 per cent. "Most of the deals were conducted around 10.5-11 per cent level," dealers said. According to dealers, call rates are expected to rule above 10 per cent as most banks have availed off additional refinance from RBI.

The RBI on Monday did not receive any application for a three-day fixed rate repo in government of India dated securities at six per cent. The National Stock Exchange's (NSE) overnight mibid andmibor quoted at 10.80 per cent and 11.06 per cent.

FORECAST: Call rates are expected to rule above 10 per cent on Tuesday.

Spot Dollar

The Indian rupee was slightly weaker in the late-morning trades on mild dollar purchases by importers The rupee was quoted at 43.545/555 against the dollar in the morning. The rupee opened at 43.53/54 against dollar unchanged form their previous close. Dollar sales by state-run banks at 43.55 against dollar maintained the rupee fall against the greenback."There are some mild dollar bids while supplies in the market have almost dried up," said a dealer from a foreign bank. "The market is very thin with very little volumes as exporters are holding back their dollars," dealers said. "At this point, the supply is only coming from the state-run banks," said a forex dealer.

According to dealers, the market is cautious as nobody wants to go long and have the RBI trigger their stop losses," said a dealer from a nationalised bank. The Indian currency finally settled at43.54/55 against the dollar towards the close.

Forecast: Rupee is expected to open at 43.53/57 against dollar.

Forward Premium

Forward premiums eased by 2-3 paise on Monday owing to easy call rates and an expected cut in banks' CRR. "The central bank was likely to cut CRR in phases to relieve pressure on liquidity from rising bank credit and a sluggish deposit growth," dealers said. The six-month premium was quoted at an annualised 5.18 per cent as against the previous close of 5.35 per cent.

Three months annualised closed at 4.8 per cent and one month at 4.9 per cent. September premium closed at 4.5-5.5 per cent (5.5-6 per cent), October at 21-23 per cent (23-25 per cent), November at 38-40 per cent (42-44 per cent), December at 57-59 per cent, January at 79-81 per cent (83-86 per cent), February at 98-101 per cent (102-105 per cent), March at 118-122 per cent (122-125 per cent) and August at 218-222 per cent (223-226 per cent).

Forecast: Forward premiums are expected to ease marginally onTuesday.

Gilts

Government security prices firmed up in morning trade on Monday after call money eased, contrary to early expectations of tightness in liquidity, dealers said. "Call money is in a lower than expected range so it is spurring buying interest particularly in long dated securities," a primary dealer said. The 11.99 per cent 2009 stock was dealt at Rs 102.57 (Rs 102.50), 12.29 per cent 2010 was dealt at Rs 103.82 as against the previous closing level of 103.74. "Bids are higher by 8-10 paise in longe dated papers since traders are comfortable with the present call money range," money market dealer said. There is a feeling in the market that long term interest rates will not remain at the current levels and this is influencing bond prices. According to dealers talks of a cut in the CRR had resurfaced and it is having an impact on the market sentiment.

FORECAST: Gilts prices are expected to firm up by 2-5 paise on Tuesday.

compiled by Reuter and Pratibha Rathore