The overnight call money market went into a tizzy on Thursday following a hike in the fixed rate repo by 300 basis points to 8 per cent from 5 per cent earlier.

The overnight call money rates shot upto a high of 10 per cent in the morning as against the previous close of 7 per cent-7.50 per cent. Lenders were quoting at 15 per cent in the afternoon whereas borrowers were quoting at 11 per cent, dealers said. However by the end of the day the overnight rates eased to close at 9.50 per cent.

Money market dealers expect the interest rates to tighten further during the week. "After the CRR cut, the rates will firm up further to 14-15 per cent," a private sector bank dealer said.

According to money market sources, by hiking the fixed rate repo, the RBI is signalling the firming up of interest rate at the shorter end. It has also made cost of borrowing funds costlier.

The total turnover of the Securities Trading Corporation of India was Rs 2,900 crore on a weighted average rate of 8.62 per cent.

FORECAST: The overnight call money rate is expected to tighten on Friday.

Spot Dollar

The rupee, on Thursday, recovered for the first time in the week to close the day at 42.80/90 after opening at 43.55/60 vis-a-vis the dollar. The rupee touched a new low of 43.70 before rebounding to 42.60 after the RBI said that it will announce a series of measures to rein in the rupee.

The RBI subsequently said that it is hiking the CRR by 1 percentage point, the repo rate by 3 percentage points, has allowed forward cover for FIIs made available to 15 per cent of the existing equity investments as on June 11, in addition to the facility available for incremental investments.

It has also withdrawn the facility of re-booking of cancelled contracts in respect of import transactions along with the facility of splitting the forward commitments into spot and forward legs. It also asked authorised dealers to report end of the day and peak intra-day positions to RBI. The RBI pumped in $100 million in the spot and the forwards.

FORECAST: The rupee is likely to stay at 42.80/43.10 levels on Friday.

Forward Premiums

The forward premiums touched a high of 19.04 per cent on Thursday after RBI announced a series of measures to tighten short-term liquidity to bring the rupee under control. The RBI also paid in the forward market for September maturities.

"The sudden rise in the forward premiums is a knee-jerk reaction to the RBI measures. A lot of banks which were receiving have now started to pay which is driving the forward rates up", a dealer with a private bank said. The six-month forward premiums closed at 12.43 per cent (annualised) and the one-year closed at 11.5 per cent. With this the forward curve has once again turned inverse clearly showing that the banks are rushing to cover in the short-term after being caught short.

FORECAST: The six-month forwards are likely to remain in the 12-13 per cent range on Friday.

Gilts

The prices in the government securities market fell sharply on Thursday following a series of measures announced by the Reserve Bank of India. The three-year government security offering a coupon of 11.55 per cent was selling below par at Rs 98 to Rs 99 offering a coupon rate of 11.98 per cent to 12 per cent.

According to money market sources, the hike in the fixed rate repo by 300 basis points and the CRR cut by 1 per cent will suck the access liquidity from the system which will further tighten the short-term interest rates.

"The yield curve will go for a toss if the call rates go up by few per cent," said money market dealers.

The wholesale debt market of NSE witnessed trades worth Rs 336.25 crore. The 11.66 per cent government loan maturing in 2001 was actively traded worth Rs 136 crore. The 13.40 per cent government stock maturing in 2004 was traded worth Rs 35 crore at a weighted yield of 11.86 per cent. The certificate of deposit issued by ICICI maturing on March 18, 1999, witnessed trades worth Rs 25 crore at a yield of 12.62 per cent.