Call rates opened at 9 per cent on Thursday compared with their previous close of 9.10 per cent. Overnight rates ruled at 9 per cent throughout the morning. However later the rates fell to 8.75 per cent.

The rates ruled tight in the morning owing to lacklustre demand for funds and eased later on excess covering. "Month-end demand for funds coupled with clearance of some high-value cheques in the afternoon created demand and eased the rates by 25 basis points," a dealer said.

Call rates finally closed at 8.70-8.75 per cent.

The system is flush with liquidity as the total outstanding in repos is to the tune of Rs 3,000 crore. The total inflow into the system on Thursday was Rs 3,000 crore and the same amount went out of the system into the Reserve Bank of India fixed-rate repos. About Rs 300 crore has also come into the system in the last two days through G-Sec redemption.

FORECAST: Call rates are seen in the 8.75-9.25 per cent band on Friday.

Spot Dollar

The spotrupee was volatile on Thursday. The Indian currency opened at 42.25/26 against the dollar compared with its previous close of 42.27/28. The rupee ruled at 42.25/26 in the morning, but weakened later by 9 paise owing to marginal month-end demand.

"Slightly higher month-end demand for dollars by corporates saw the rupee weaken," dealers said. The State Bank of India entered the market in the afternoon and reportedly bought dollars which saw the rupee weaken to finally close at 42.33/34. "SBI wants the rupee to hover in the 42.28/40 band," a dealer said. The Reserve Bank of India's reference rate for the dollar was Rs 42.29 against the previous peg of Rs 42.27.

FORECAST: The spot rupee is seen at 42.30/40 on Friday.

Forward Premiums

Forward premiums opened at their previous closing levels on Thursday. However the premiums firmed up during the day owing to month-end covering by corporates. Near-term premiums firmed up by 1-2 paise while far-end ones hardened by 5-8 paise.

The six-monthannualised premium quoted at 7.7 per cent (7.10 per cent), three months at 6.9 per cent (6.5 per cent) and one month at 5.10 per cent (4.85 per cent). November premium quoted at 17-19 paise (17-19 paise), December at 39-42 paise (39-42 paise), January at 68-72 paise (67-71 paise), February at 94-99 paise (94-97 paise), March at 127-132 paise (122-127 paise), April at 158-161 paise (151-154 paise), May at 187-192 paise (181-185 paise), June at 218-223 paise (211-216 paise), July at 249-253 paise (247-251 paise), August at 279-283 paise, September at 308-312 paise and October at 336-342 paise.

FORECAST: The six-month annualised premium is seen at 7.6-7.8 per cent on Friday.

Gilts

Prices of short-term government securities fell by 2-3 paise on Thursday on reduced demand. The market is of the view that short-term interest rates will remain stable.

According to dealers, short-term premiums softened last week as the market was expecting a fall in interest rates. "In the last two days, pricesimproved by 5-8 paise owing to central bank indication that interest rates would remain stable. Gilt prices are stable now," a dealer said.

Little interest was seen in the zero coupon 2000 paper which quoted at Rs 82.70. Some interest was also seen in the zero coupon 1999 paper. The wholesale debt market of the NSE witnessed trades worth Rs 202.51 crore compared with the previous peg of Rs 336.13 crore.

FORECAST: Short-term gilt prices are expected to remain volatile on Friday.