Overnight rates drifted lower still on Wednesday to close at 8-8.25 per cent. Opening the day at 9-9.25 per cent, unchanged from its last close, call rates continued their southward sojourn. "There is enough liquidity in the system. Demand for funds was poor", a dealer with a Gulf-based bank said, adding: "The upcoming credit policy on 29 October has also affected sentiment with few ready to take positions". Banks and primary dealers have reportedly squared off all residual borrowings of the RBI's additional refinance at 10 per cent. Liquidity has improved following the inflow of over Rs 2,000 crore on the RBI's repurchase of 364-day T-bills. "Quite a few banks struck 14-day repo deals at the start of the current reporting fortnight as inflows for the period are relatively low at Rs 1,900 crore. Banks did want to take any chance as opinion is still divided on a cash reserve ratio (CRR) cut in the credit policy", a dealer with a European bank said. The DFHI extended market support to the tune of Rs 1,700 crore(Rs 1,900 crore).

FORECAST: Call rates seen at 8-8.50 per cent levels on Thursday.

SPOT DOLLAR

The rupee held rocksteady against the dollar on Wednesday. Opening the day at 43.3925/3975 from its overnight close at 43.39/40, dull trades saw the rupee rule in a narrow band. "There was a brief period when the rupee went to its intra-day low of 43.40/41, but the it recovered to close at 43.37/38", a dealer with a brokerage said, adding: "US energy secretary, Bill Richardson's statement on that President Bill Clinton had signed a bill that gave him authority to waive economic sanctions imposed on India after its May'98 nuclear tests has lent a bit of bouyancy". State-run banks were expected to buy dollars at 43.38 levels to prevent the rupee from appreciating further, but no buying was seen. Near-terms swaps quoted unchanged with cash/tom quoted at 0.50/0.6250 paise, cash/spot at 1/1.25 paise and tom/spot at 0.50-0.6250 paise. The Reserve Bank pegged its reference rate for the dollar at 43.40 as against its previous 43.38. Elsewhere, the Euro opened the day at 46.22 (46.89) against the rupee, went to anintra-day high of 46.15 (46.37) before closing at 45.70 (46.15).

FORECAST: Rupee seen at 43.3850/40 levels on Thursday.

FORWARD PREMIUMS

Dull trades continued to plague the forward market on Wednesday. The six-month annualised forward premium was quoted a shade higher ay 5.41 per cent (5.43 per cent). "Forwards quoted a shade higher by about 2-3 paise. There was some month-end paying pressure, but demand for dollars was poor", a dealer with a brokerage said. April dollars finished at 120/122 paise (119/120 paise) and May at 140/142 paise (139/140 paise). The RBI has infused over Rs 2,000 crore into the inter-bank markets by repurchase of 364-day T-bills, and this has led to premiums softening. "Forwards continued to track call rates, now much softer at 8-8.25 per cent levels. But premiums never came off in a big way as there is some month-end paying and rollovers taking place... all eyes are also the RBI though opinion on a cash reserve ratio (CRR) remains a divided one", a dealer with US-based bank said.

FORECAST: Six-month annnualised forward cover seen at 5.40 per cent levels on Thursday.

GILTS

Bond prices held flat in intra-day trades on Wednesday. The 11.90 per cent 2007 was seen at Rs 102.89 (Rs 102.90 levels) with the 11.99 per cent 2009 at Rs 102.58 (Rs 103.60). The 12.50 per cent 2004 was quoted at Rs 105.36 levels (Rs 105.37-105.40) with the 11.19 per cent 2005 at Rs 100.56 (Rs 100.58-100.61). "Trades are vary with the Reserve Bank's credit policy just around the corner... rumours of cash reserve ratio abound, but it is really anybody's guess", a dealer with a primary dealership said. Bond prices had recovered a shade after RBI announced its repurchase of 364-day T-bills. The RBI has infused over Rs 2,000 crore into the inter-bank markets through the repurchase of 364-day T-bills. Yeilds on securities have fallen, and the difference between yeilds on one-year and 10-year dated-stock now stands reduced to 117 basis points, down from the 198 basis points at the start of the current fiscal. "But I believe this has bottomed out", said Credence analyst, Sanjay Choudhary.

FORECAST: Gilt prices may hold current levels on Thursday.

-- Compiled by Raghu Mohan