In the securities market, yields on short-term gilts went up across the board and overnight call rates firmed up to 8.75 per cent - piercing the fixed repo rate of 5 per cent - in a telltale sign of tightening liquidity and interest rates shooting northwards.The six-month annualised forward cover closed at 12.25 per cent compared to its Friday's last quote at 10.43 per cent as premiums tracked a much weaker spot-rupee and firmer overnight rates.

The Reserve Bank India did not intervene in the forex market to prop up the rupee. The Indian unit closed the day at 42.71/74 thereby losing over 50 paise on a single day. On Friday, the rupee closed at 42.17/22.Finance secretary Montek SinghAhluwalia's statement that Moody's downgrade was no reason for pessimism about India's economic fundamentals could only temporarily arrest the fall of the rupee.

Ahluwalia told a foreign news agency: "The rupee's fall today was a temporary reaction to Moody's cut and I hope it would review its ratings in a few months time". According to Bank of America's global capital markets (India) managing director Arvind Sethi: "Sentiment changed with Moody's double-notch downgrade to Ba2 and the rupee came under pressure. The market also did not expect the Reserve Bank of India to be present, which affected the mood today".

Mecklai Financial Services' senior vice-president KN Dey said the rupee will continue to be under pressure for some time. "The rupee can be expected to go a bit lower to 43 though I see it bouncing back from those levels soon after," said Dey. However, ICICI Bank's executive vice-president PH Ravikumar said the rupee will not fall further. "This is a case of extreme nervousness and confusion. TheIndian currency has been excessively pushed down. It will not dip further," Ravikumar said.

In a day of sea-saw movements, the rupee opened at 42.33/38 (against the Friday's closing level of 42.17/22) and in no time the spot rupee slipped to 42.45/48 as heavy corporate demand for the greenback set in. The SBI sold dollars in small lots when the rupee dipped to 42.50/51 but unfettered dollar demand, coupled with State Bank's withdrawal from the market, saw the local currency falling to 42.65. Dollar inflows helped it to recover to 42.58-42.60. However, the rupee's respite was shortlived and it soon quoted at a historic low of 42.85. Profit taking saw the rupee trading 10-15 paise stronger and finally it closed at at 42.71/74. Near-term forwards firmed up by 20-33 paise. There was quite a bit of paying pressure in July and September maturities.

July premiums ended at 59/61 paise with September at 148/150 paise. Long forwards were also higher by 15-20 paise with March premiums finishing at 396/400 paise,April at 428/433 paise and May at 463/470 paise. Said Global Trust Bank's treasury-head A Anchan: "Corporates with unhedged positions rushed to cover sending forwards higher while exporters kept away". The one-month annualised forward cover closed at 13.95 per cent (12.15 per cent), two-months at 13.43 per cent (11.58 per cent) with three-months at 12.94 per cent (11.36 per cent).