ĪThe volatility in the forex market and the forthcoming auction on Thursday saw the call money market tighten on Wednesday. The overnight rates opened at six to 6.25 per cent compared with the previous close of 5.75 per cent. The rates firmed up in the afternoon to close at the bank refinance rate of seven per cent.

According to money market dealers, almost all the traditional lenders refrained from lending in the market as they wanted to remain liquid. "There was a lot of demand for funds which was coupled by constrained supply which further hardened the interbank call money rates," dealers said. The tightening of the call rates was also due to the expected outflow from the system to the tune of Rs 3,000 crore to the government loan auction to be held on Thursday, dealers said.

The Securities Trading Corporation of India turnover was Rs 1,700 crore on a weighted average rate of 6.26 per cent.

FORECAST: The call rates are expected to firm up further on Thursday.

SpotDollar

The rupee touched its historic low of 43.35 against the dollar on Wednesday. The Reserve Bank of India extended support to the local currency to the tune of $75 million to $100 million, dealers said.

The rupee opened at 42.92/93, a shade weaker than its previous close of 42.88, and weakened to 42.95/98 soon thereafter.

The State Bank of India sold dollars at this point helping the rupee recover to 42.84. Renewed corporate dollar demand at 42.84 saw the rupee hit its all-time low of 43.35, but not before the Reserve Bank of India's intervention. The Reserve Bank's support helped the rupee close at 42.95/43.05.

Cash/spot quoted at 0.50/1.25 paise and cash/tom at 0.25/0.75 paise. Elsewhere, the Reserve Bank of India pegged its reference rate for the dollar at 42.94 compared with its previous fix of 42.71.

FORECAST: The rupee is seen in the 42.90-43.15 band on Thursday.

Forward Premiums

Forward premiums tracked a weak spot rupee and slightly firmer call rates at seven percent on Wednesday. "There was panic covering the forwards...premiums were up by 10 to 15 paise for some months," dealers said. December dollars closed at 145/150 paise, January at 180/185 paise, February at 210/215 paise, March at 247/252 paise and April at 285/290 paise. "A few public sector undertakings and corporates with forex loan exposures were seen hedging," a dealer in a brokerage said.

The six-month annualised forward cover closed at 9.02 per cent, higher than its previous finish of 8.20 per cent while the one-year one closed at 9.58 per cent (9.02 per cent).Annualised near terms also firmed up with the one-month one at 8.11 per cent (5.64 per cent), the two-months one at 8.71 per cent (6.59 per cent) and the three-months one at 8.99 per cent (7.27 per cent).

FORECAST: The six-month annualised forward cover is seen at 9.15 per cent on Thursday.

Gilts

Short-dated government securities prices witnessed a reverse trend on Wednesday as they fell by 15 to 20 paise, triggered by thevolatility in the forex market. The market saw hectic sale of short-dated securities by foreign banks to the tune of Rs 600 crore to Rs 700 crore.

According to dealers, a lot of selling interest was seen in short-dated securities such as the four-year paper at a coupon of 11.68 per cent, the three-year one at 11.55 per cent and the two-year one at 11.64 per cent. The wholesale debt market of the National Stock Exchange witnessed trades worth Rs 548.96 crore. The 11.55 per cent government loan maturing in 2001 was traded actively worth Rs 198 crore at a yield of 11.42 per cent and the 11.68 per cent government loan maturing in 2002 was traded worth Rs 35 crore at a yield of 11.60 per cent.

FORECAST: Government securities prices are expected to appreciate on Thursday.