The overnight rates quoted lower on Tuesday compared with their previous close as rupee inflows from Resurgent India Bonds conversions swamped the inter-bank market. The rates opened at 8.50-9 per cent and softened to 7.25-7.75 per cent in later trades with most banks having provided for the cash reserve ratio requirements ahead of August 29 and Wednesday's bank holiday.

At the close, the call rates were at 7.50-7.75 per cent. The Reserve Bank of India mobilised Rs 3,600 crore at the three-day 8 per cent repos. "The system is awash with funds...despite a higher CRR at 11 per cent coming into force from Saturday and tighter monetary measures, the response to the repos has been excellent," a dealer with a European bank said.

On Monday, the RBI had sucked out Rs 4.615 crore through three-day repos. The total turnover of the Securities Trading Corporation of India was lower at Rs 750 crore, down from Rs 1,000 crore on Monday, at a weighted average rate of 7.88 per cent. The National Stock Exchange's Mibid was 7.98 per cent (9.51 per cent) with Mibor at 8.20 per cent (10.30 per cent).

FORECAST: The call rates are seen at 7.50-8 per cent on Thursday.

Spot Dollar

The rupee held steady against the dollar in dull trades on Tuesday, moving in a fine 4 paise band. The Indian currency opened at 42.45/48, little changed from its overnight finish, and gained in early trades to 42.43/44.

A fair bit of corporate interest for the greenback at this point saw the rupee touch an intra-day low of 42.52/53. The Reserve Bank of India did sell/buy swaps at these levels.

"The RBI's intervention saw premiums go higher...pressure on the spot rupee eased a bit with corporates refraining from covering their spot and forward legs," dealers said. At the close, the rupee quoted at 42.47/50.

"Sentiment has improved with the Resurgent India Bonds collecting $4.16 billion...the Reserve Bank's measures announced last Thursday has helped the rupee stabilise," dealers said.

Cash/spot finished at 0.25/0.75 paise, lower than its previous close of 2/2.25 paise, and cash/tom at 0.25/0.50 paise (0.50/0.75 paise). Elsewhere, the Reserve Bank of India pegged its reference rate for the dollar at 42.50 compared with its previous peg of 42.48.

FORECAST: The rupee is seen between 42.40 and 42.50 on Thursday.

Forward Premiums

Forwards ended softer on Tuesday riding on lower call rates despite the Reserve Bank of India's intervention via sell/buy swaps. After opening lower than their previous finishes, the premiums perked up with Reserve Bank of India's sell/buy swaps.

"The Reserve Bank paid in September and October," dealers said. State-run banks were seen receiving heavily on customer withdrawals of foreign currency non-resident liabilities to invest in Resurgent India Bonds," dealers said.

Lower call rates at 7.50-8 per cent and inflows of rupee funds via the RIB conversion saw premiums close lower. September premiums finished at 53/58 paise (59/64 paise), October at 92/96 paise (95/100 paise) and November at 121/126 paise (126/131 paise). In the far terms, May premiums closed at 335/340 paise (345/355 paise) and June at 372/378 paise (382/392 paise). The six-month annualised forward cover closed at 10.43 per cent (10.95 per cent), one month at 14.4 per cent (15.58 per cent), two months at 12.6 per cent (13.02 per cent) and three months at 11.35 per cent (11.72 per cent).

FORECAST: The six-month annualised cover is seen at 10-10.15 per cent on Thursday.

Gilts

The bond market witnessed dull trades on Tuesday. The 11.55 per cent 2001 traded at Rs 99.70, unchanged from its previous close. Trading interest was also seen in the 12 per cent 1999 between Rs 100.30 and Rs 100.35, 11.64 per cent 2000 between Rs 100.25 and Rs 100.30, 11.75 per cent 2001 at Rs 100.05.

Long-term gilts did not find favour with bond dealers. The 364-day treasury bills maturing on October 9 were seen at a yield to maturity of 11.25 per cent.

"Prices of short-term gilts are expected to improve in the days ahead...So banks are holding on to their short-term investments rather than book a loss by selling," dealers said.

Trades worth Rs 215.37 crore were seen on the National Stock Exchange's wholesale debt segment, marginally down from Monday's Rs 223.6 crore. The zero coupon 2000 (A) was traded at a YTM of 11.32 per cent. Reliance Industries commercial paper maturing on September 14 was dealt at a YTM of a 12.5 per cent. Repos trades worth Rs 25 crore were done at 14.90-15 per cent for the next fortnight.

FORECAST: The short-term gilts are seen at the current price levels on Thursday.