Call rates opened wide at 8.30-8.60 per cent on Tuesday, and ruled in the 8.25-8.40 band for most of the day. "The market was squarish and ruled in a very narrow range", dealers said, adding: "the market witnessed good demand for funds. Call rates opened slightly higher at 8.25-8.60 per cent levels with a slight tightening of liquidity following dollar buying by banks". The Reserve Bank did not receive any application at three-day six per cent fixed-rate repos held here today. "There is a feeling that call rates may tighten on account of the Rs 5,000 crore twin bond auction of the 12.32 per cent 2011 and the 12.40 per cent 2013 tommorrow", a dealer with Gulf-based bank said. Meanwhile, the National Stock Exchange's overnight Mibid and Mibor were pegged at 8.20 per cent (8.33 per cent) and 8.35 per cent (8.51 per cent) with the 14-day ones at 8.46 per cent (8.37 per cent) and 9.14 per cent (9.16 per cent).

FORECAST: Call rates seen at 8.25-8.40 per cent levels onWednesday.

Spot Dollar

The rupee weakened to an intra-day low of 43.32/33 on Tuesday as the Kargil situation threatened to worsen with rumours of fresh air strikes by Pakistan putting further pressure. Opening the day weaker at 43.15/20 from its weekend's close at 43.15/16, the rupee was seen lower at 43.18/20 in early trade before going to its day's low of 43.31/33 on good corporate demand for dollars. "Sentiment in the spot market was affected after a few export cancellations", Mecklai Financial Services' senior vice-president, KN Dey, said. Quite a few nationalised banks, including the State Bank of India bid for dollars, and dealers said that deals were done at the rupee intra-day low where it closed. Cash/spot closed at 0.50/0.75 paise (1/1.25 paise) with cash/tom and tom/spot going at 0.25/0.50 paise (0.3750/0.6250 paise). The Reserve Bank fixed its reference rate for the dollar at 43.13 per as against ihe previous fix of Rs 43.02. Elsewhere, the rupee opened the day at 44.91 (45.23) againsteuro, went to an intra-day low of 45.06 (45.03) to close at 45.04 (45.03).

FORECAST: Rupee seen volatile and ranged between 43.25 and 43.40 on Wednesday.

Forward Premiums

Forward premiums went higher in tandem with a weaker spot-rupee, which closed at 43.31/33 on Tuesday. The six-month annualised forward cover closed at 5.55 per cent (5.45 per cent). "There was quite a bit of export cancellations beyond December which saw long forwards flare up", Mecklai Financial Services' senior vice-president, KN Dey, said, adding: "This has created an imbalance between supply and demand for dollars". August dollars closed at 42/48 paise (42/45 paise) with September at 67/68 paise (62/65 paise) while in the far terms, January dollars went at 153/155 paise (153/155 paise) and February at 179/182 paise (173/176 paise). "If call rates tighten because of twin-bond auction on June 16, advance tax outflows, and dollar purchases by banks, premiums could flare up", a dealer with European banksaid.

FORECAST: Six-month annualised premium seen between 5.25 and 5.40 per cent on Tuesday.

Gilts

Bond prices fell on Monday reflecting the nervousness in the spot-rupee. The 12.32 per cent 2013 went at Rs 102.30 (Rs 102.45); 12.40 per cent 2013 at Rs 101.82 (Rs 101.90); and the 11.99 per cent 2009 went at Rs 101.25 (Rs 101.37). "Kargil holds the key. If the rupee weakenens as a result, sentiment will continue to be bearish in the securities market. More so, because of the twin-bond auction tommorrow of the 12.32 per cent 2011 and the 12.40 per cent 2013. Advance tax outflows at almost Rs 3,500 crore later in the week may drain liquidity", a dealer with a primary dealership said. The 12.50 per cent 2004 went at Rs 104.20 levels (Rs 104.30-104.35) with the short-dated 11.40 per cent 2000 going steady at Rs 100.72.

FORECAST: Bond prices to fall on Wednesday; Kargil to hold key.