Call rates flared up on Monday to an intra-day high of 11 per cent. Opening the day at 10-10.25 per cent, from its weekend's close at 10.10-10.25 per cent, call rates moved up to 11 per cent level in early trades on hectic covering by bank ahead of the reporting Friday. "There are fears that call rates will firm on outflows from the state-loan auction for Rs 3,250.08 crore on September 8. Nobody wants to take a chance", a dealer with a Gulf-based bank said.

Payout for the auction is on 9, a day ahead of the Friday. Call rates have ruled at 10 per cent and above after Reserve Bank's auction of the 11.99 per cent 2009 for Rs 2,500 crore on 27 August. Call rates eased from its intra-day high to 10.75-10.80 per cent by close of trades. Most of deals were struck around 10.75 per cent levels. The Reserve Bank did not receive any bids at its three-day 6 per cent fixed rate repos held today. NSE fixed its overnight Mibid and Mibor at 10.59 per cent and 10.94 per cent with the fortnightly one at10.07 per cent and 10.81 per cent.

FORECAST: Call rates seen at 10.75-11.10 per cent on Tuesday.

Spot Dollar

The rupee held firm against the dollar on Friday. Opening the day at 43.49/4950, almost unchanged from its weekend's close, poor corporate demand for dollars saw the rupee close a shade stronger at 43.47/4750. "Corporate demand for dollars was poor. Dollar supplies were good. The rupee had gained to 43.4775/4825 by noon", a dealer with a US-based bank said, adding: "The bouyancy in the bourses has also helped the rupee hold its current levels". The Reserve Bank's move to liberalise norms on overseas borrowing and investments were cited as reasons boosting sentiment on the rupee, allaying fears of any near-term rupee depreciation. "Trades were mostly inter-bank. A few banks were seen getting out of their long-dollar positions to create liquidity with call rates ruling firm", a dealer said.

Cash market quotes were not available with the US remaining closed. Tom/spot was seen at 0.50/0.75paise. The Reserve Bank fixed its reference rate for the dollar at 43.48 as against its previous 43.51. The euro opened at 45.98 (46.44) against the rupee, went to a high of 46.15 (46.63) before closing at 46.02 (46.50).

FORECAST: Rupee seen at 43.4750/48 on Tuesday.

Forward Premiums

Forward premiums went higher on Monday in line with higher call rates at a high of 11 per cent in intra-day trades. The six-month annualised forward cover was seen 5.9 per cent (5.56 per cent). "Higher call rates pushed up premiums. Trades were mostly inter-bank, and there was paying interest across all maturities", a dealer with a brokerage said. Call rates are expected to firm on outflows from the state-loan auction for Rs 3,250.08 crore on September 8, and this has affected forward premiums.

The one-month annualised premium was up at 6.28 per cent from Friday's 5.43 per cent. January dollars quoted at 101/103 paise (97/98 paise) with February at 122/124 paise (116/118 paise). Premiums had fallen on Friday afterthe Reserve Bank deputy governor YV Reddy said in Kathmandu that the central bank would pursue its medium term objective to reduce banks' cash reserve ratio (CRR) to a minimum. "Premiums inched up as the trend reversed today. There was paying interest as opposed to Friday's receiving. There are now no hopes of a CRR cut until after a new government is installed at the centre", a dealer with a US-based bank said.

FORECAST: Six-month annualised forward cover at 5.75-6.05 per cent on Tuesday.

Gilts

Bond prices rose quoted lower on Monday. The 11.99 per cent 2009 was dealt at Rs 101.85-101.90 (Rs 102.10-102.12) with 12.50 per cent 2004 at Rs 104.88-104.92 (Rs 105.13-105.15). Fears of a call-rate firm up on outflows from the state-loan auction for Rs 3,250.08 crore on September 8 has led to bearish sentiment in the bond markets.

On Friday, bond prices had rallied--reversing a trend of lower bond prices seen after the auction of the 11.99 per cent 2009 for Rs 2,500 crore on 27 August--followingReserve Bank deputy governor, YV Reddy's statement that the central bank would pursue its medium term objective to reduce bank's cash reserve ratio (CRR) to a minimum. "Nobody is building up positions ahead of the state-loan auction. Firmer call rates at 11 per cent levels have seen most banks prefereing to stay liquid ahead of Reporting Friday. The long-dated 12.32 per cent 201 was dealt at Rs 102.85-102.90 (Rs 103.05-103.10).

FORECAST: Bond prices seen going lower on Tuesday.

Compiled by Raghu Mohan