Forward premiums moved up intra-day tracking the spot rupee, but closed nearer to their overnight levels. The six-month annualised forward premium closed at 5.64 per cent (5.42 per cent).

Bankers are not worried about the future of the Indian currency. Says ICICI bank's senior executive PH Ravikumar: "The rupee will remain reasonably firm in near future. Since the beginning of the financial year, the rupee has been depreciated by about 4 per cent which is a fair level considering the current inflation rate. The Indian currency will trade at or below 44 level against the dollar by March 2000."

Opening the day at 43.5850/5950 from itsprevious close at 43.5675/5725, the Indian currency started going lower on fairly active corporate interest for dollars. The holiday on Thurday for bank's half-yearly accounts also affected trades. Dealers said that there appeared to be a slight bunching together of month-end dollar demand with the spot-date shifting to October 1.

Dealers said the State Bank sold dollars in afternoon trades which helped the rupee recover slightly. Other state-run banks also sold dollars from 43.60 levels up to 43.5875, they said.

Prices of government securities were softer in evening trade on Wednesday as sentiment was affected by a weak rupee. "Tight conditions have been felt in the call market which has also affected bond prices," a senior dealer at a state-run bank said. Call money rates closed at 8.75-9.25 per cent, off the day's high of 9.0-9.40 per cent, after they opened at 8.75-9.0 per cent.

The 12.32 per cent 2011 bond was quoted at 103.58/59 compared to the morning's 103.62-103.64 range. The 12.40 per cent2013 bond was quoted at 103.58/61 against 103.61.

In the forex market, cash/tom was quoted 1.25/1.50 paise (0.25/0.50 paise), cash/spot at 2.50/3 paise (1.50/2.25 paise) with tom/spot at 1.25/1.50 paise (1.25/1.75 paise). The upward movement in forwards premiums was in line with a weaker spot rupee. "There is slight amount of residual month-end dollar interest from importers, but overall volumes are thin. Paying interest will abate once the month-end demand gets over", a dealer with a US-based bank said.

In the near term, October finished at 16/17 paise (15/17 paise) with November unchanged at 36/37 paise. In the far forwards, April held firm at 139 /141 paise and May at 163/164 paise (158/162 paise). Dealers cited exit polls that showed the BJP will win 249 of the 418 seats polled so far to drive home the point that there will be any untoward influence on premiums in the short-run.

INSIGHT:

Multiple reasons

There are many reasons for a weakening of the rupee, apart from traditionalmonth-end demand and the banks remaining closed on September 30. One is the fact that FII flows have been sharply negative in the last week. The second is anticipatory buying by corporates in the expectation that the elections will end the political reasons for supporting the rupee. The third is the continuing rise in crude oil prices. The recent spike in gold prices too could have led to weaker sentiment for the rupee.

-- Sarad Saraf