The overnight rates closed softer on Monday compared with their previous close owing to lacklustre demand for funds and ample liquidity. The call rates opened at 9.50-10 per cent, a tad lower than their previous close of 10 per cent, and eased by noon to 8-8.76 per cent.

"There was hardly any demand for funds...banks appear to have borrowed well ahead of the reporting Friday on the 29th of this month," dealers said.

At the close, the call rates quoted at 7.50-7.75 per cent, below the repo rate of 8 per cent. Most deals were struck between 8.20 and 9 per cent.

"There seems to be a fair amount of liquidity...rupee inflows on conversion of Resurgent India Bonds proceeds appear to have entered the system," dealers said.

The Securities Trading Corporation of India's turnover was Rs 1,000 crore on a weighted average rate of 8.47 per cent.

FORECAST: The call rates are expected to open at 7-8 per cent on Tuesday.

Spot Dollar

The rupee held steady against the dollar on Monday. The Indian currency opened at 42.48/52, little changed from its previous close, and weakened to 42.55/57 by noon. In later trades, dollar supplies and receiving in the forwards saw the rupee gain to an intra-day high of 42.46/48, where it finished.

"Market sentiment improved on news of Resurgent India Bonds proceeds coming into the country," a dealer with a brokerage said. Both the Reserve Bank of India and the State Bank of India stayed off the market.

Cash/spot ended at 2/2.25 paise and cash/tom at 0.50/0.75 paise. Elsewhere, the Reserve Bank of India pegged its reference rate for the dollar at 42.48 against its previous peg of 42.57.

FORECAST: The rupee is seen up at 42.35-42.40 on Tuesday.

Forward Premiums

Forwards softened across maturities on good receiving and lower call rates on Monday. "Premiums opened higher in early trades, but came off their morning quotes on receiving by exporters, with little interest from importers," dealers said.

In the near terms, September premiums closed at 59/64 paise, October at 95/100 paise and November at 126/131 paise while at the long end, April finished at 310/318 paise, May at 345/355 paise and June at 382/392 paise.

"Lower call rates also help forward cool off," dealers said. Overnight rates closed at the repo rate at 7.50 per cent thereabouts. The six-month annualised forward cover closed at 10.95 per cent, down from its previous close of 12.06 per cent, one month at 15.58 per cent (18.85 per cent), two months at 13.02 per cent (15.75 per cent) and three months at 11.72 per cent (13.92 per cent).

FORECAST: The six-month annualised forward cover is seen in the 10.25-10.35 per cent range on Tuesday.

Gilts

Prices of short-dated government securities recovered by 10 to 15 paise on Monday over their previous closes owing to lowered demand.

"Trades were dull," bond dealers said, save for a large amount of interest in the 11.55 per cent 2001 gilt which traded at Rs 99.70, up from its previous close of Rs 99.60. "Primary dealers were not seen quoting much...most have locked their excess funds in the three-day fixed-rate repos held on Monday," a dealer from a private-owned bank said.

The market is yet to recover from the rupee-rescue measures announced last week.

FORECAST: Prices of short-dated government securities are expected to appreciate on Tuesday.