Overnight touched an intra-day high of 25 per cent on Friday. Opening the day at 14.50-15 per cent from its previous close at 13-14 per cent, call rates ruled at these levels till noon. "Call rates rose in later afternoon trades with demand for funds going up... a few banks who were expecting call rates to ease in the second session were caught short and rushed in to cover", a dealer with a Gulf-based bank said. The State Bank, and a few other nationalised banks were reportedly not seen in the market. Most of the deals were conducted around 15-18 per cent level. Liquidity tightened after outflows of Rs 5,000 crore after a twin-bond auction last week. "Nobody knows what triggered the sudden demand for funds, but inflows are poor", a dealer with a European bank said, adding: "Quite a few banks were selling bonds to stay liquid... and no one is going long on dollars". At close of trades, call rates were seen at 24-25 per cent. The NSE pegged its overnight Mibid and Mibor at 12.27 per cent (15.13 per cent) and13.47 per cent (17.41 per cent) with the fortnightly one at 10.94 per cent (11.08 per cent) and 12.06 per cent (11.57 per cent).

FORECAST: Call rates seen at 20 per cent levels on Saturday.

SPOT DOLLAR

The rupee continued to rule firm against the dollar on Friday. Opening the day at 43.43/44 from its last close at 43.42/43, the rupee moved in a fine two paise band throughout the day. "There rupee weakened a shade to 43.45 levels in the morning with signs that call rates will ease... but that never happened. Inter-bank interest for dollars is next to nothing as it does not make sense to go long on dollars with call rates at such high levels", a dealer with a US-based bank said. Call rates went to an intra-day high of 25 per cent where they closed. At close, the rupee was seen at 43.43/44. Near-term swaps quoted higher in line with the higher call rates. Cash/tom was quoted 3/3.50 paise (1/1.25 paise), cash/spot at 5/6 paise (4/5 paise) with tom/spot at 2.75/3.25 paise (2.75/3 paise). FIIs turned net-sellers to the tune of $10.9 million on Wednesday, but dealers said the overall outlook remained bullish. The Reserve Bank pegged its reference rate for the dollar at 43.44 as against its previous 43.43.

FORECAST: Rupee seen at 43.44 levels on Monday.

FORWARD PREMIUMS

Forward premiums rose on Friday with call rates at 24-25 per cent. Near forwards were higher by 2 paise while far forwards moved up by 3 paise. The sixth-month and yearly annualised premiums finnished higher at 5.77 per cent (5.55 per cent) and 5.67 per cent (5.57 per cent). "Premiums opened only a shade higher from their overnight finishes... there were also signs in early trades that may soften, but with call rates flaring up to 25 per cent by close of trades, premiums also moved up", a dealer with a brokerage said. October premiums finished unchanged at 11/12 paise (10/11 paise) with April at 133/135 paise (128/130 paise) and May at 153/155 paise (149/150 paise). "Trades were volatile today in the forwards segment. It will remain till call rates ease to sub-10 per cent levels... however, demand for dollars remains poor. Premiums are high primarily because of call rates", a dealer with a European bank said.

FORECAST: Six-month annualised forward cover seen at 5.5 per cent levels on Monday; call rates hold key.

GILTS

Bond prices fell by five to six paise across all maturities on Friday. The 11.9 per cent 2007 bond was dealt at Rs 102.7 in late trades from its Rs 102.74 in opening deals with the 12.5 per cent 2004 bond at Rs 105.25 levels (Rs 105.30). "Firm call rates are driving down bond prices with banks selling securities to stay liquid... sentiment is bearish", a dealer with a primary dealership said. Liquidity has remained tight ever after outflows of Rs 5,000 crore after a twin-bond auction last week impacted on the inter-bank market. Bond prices were seen gaining in early trades on faint hopes that call rates may ease. Call rates flared up to 25 per cent by close of trades. "Trouble across the border has further compounded the issue... the fear is that call rates could tighten further in the second half of this fortnight", a dealer with a US-based bank said.

FORECAST: Gilt prices seen holding firm on Saturday.

-- Compiled by Raghu Mohan