Mumbai, July 11: The rupee pierced the psychological barrier of Rs 35.70 against spot dollar on Friday to touch Rs 35.69. Gilt prices, meanwhile, jumped by an average 30-35 paise across all maturities in a highly volatile money market.

The upward pressure on the domestic currency assumes significance at a time when the Pakistani rupee and the Philippine peso have been devalued. Closer home, the Thai baht and the Malaysian ringgit are in a turmoil.

A source close to the central bank said the dollar will gain strength in the next few weeks as the apex bank is all set to announce a policy to ease import curbs in some sectors like consumer durables. "The policy is expected to boost dollar demand and take the rupee once again back to Rs 35.80/85 levels," a banker said.

After a gap of four days, the Reserve Bank of India (RBI) intervened in the foreign exchange market on Friday to stem the further slide of dollar. The central bank mopped up $50-75 million at Rs 35.69. "The RBI buying did not boost the dollar but arrested the declining trend," a dealer said.

The wholesale debt market of the National Stock Exchange (NSE) witnessed record trading as money markets continued to be sogged by liquidity. Call rates ruled at very low levels.

Opening at a seven-month low of Rs 35.72/73, the rupee was driven by pure sentiment to breach the Rs 35.70 level to reach Rs 35.69 against the greenback. "The spot rupee reacted as there was a steady flow of dollars. Banks holding on to dollars began selling the greenback anticipating that the central bank will not prevent the rupee from appreciating," a dealer with a foreign bank said.

Reserve Bank will continue to intervene in the market to keep the value of the rupee close to the real effective exchange rate, a central bank source said. Treasury heads felt that RBI will intervene to stop the rupee from appreciating. "It does not make any sense for RBI to keep away from intervening in the spot market. Exporters will be hurt further at a time when importers are virtually absent in the market to make any serious enquiries," a exporter said.

Through its 15-minute intervention in mid-afternoon trades, the RBI mopped up to $50-75 million, which saw the rupee softening from Rs 35.69 to Rs 35.72. Immediately after this, the State Bank of India entered the market to buy dollars for its corporate clients. However, the SBI bought small lots, a dealer said. Towards the end of the day, the rupee hardened to close at Rs 35.71.

Premiums on the dollar remained largely inactive. Six-month dollar premiums stayed put at Thurshday' closing level of 3.65 per cent. "The premiums were steady because a few importers were swapping their long-term deliveries with the near ones,'' a dealer at a private-owned bank said.

Bankers expect the rupee to open stronger on Monday and gain further if RBI decided to stay away from the market. Treasury chiefs admitted that RBI intervention on Friday did not send any strong signals as it mopped a small amount. "It was a just a token appearance and failed to create any band," a chief dealer at a private bank said.

Bankers expect RBI to intervene in the spot market before the Rs 3000-crore six-year paper auction on Wednesday. "It might mop up dollars from the market and release rupee into the system before the auction even though the call rates are low and the auction might see oversubscription," a dealer said. The six-year paper is expected to sail through at 12 per cent yields. Prices of zero-coupon 200, 12.59 per cent gilt maturing in 2004, 12.50 per cent security maturing in 2004, and the 12.14 per cent gilt maturing in 2000 went up 35-40 paise. The debt market at the National Stock Exchange also witnessed high turnover with volumes crossing the Rs 900-crore mark.