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Portugal says pays higher rate but completes financing

Portugal had to pay increased interest rates to borrow 2.0 billion euros ($2.6 billion) on Wednesday but raised the amount it needed to complete its financing for this year.

“Portugal has succeeded in placing all of the maximum intended amount, which is always good news,” analysts Filipe Silva of Carregosa bank told AFP.

“The rise of the rates is not a surprise to the extent that the rates on the secondary market (for existing debt) have risen in recent weeks,” he said.

The treasury said that it had placed 18-month bonds to raise 1.2 billion euros at a rate of 2.990 percent from 2.967 percent on September 19.

It raised 500 million euros for six months at 2.169 percent from 1.839 percent, and 300 million euros for three months at 1.936 percent from 1.366 percent on October 17.

Demand for the 18-month bonds amounted to 1.9 times the amount on offer, 4.5 times the amount of six-month bonds and 5.1 times the three-month bonds.

The agency had wanted to raise 1.75-2.0 billion euros with the issues which marked the end of the government’s financing programme for 2012.

The issue occurred after auditors from the European Union, the European Central Bank and the International Monetary Fund had expressed satisfaction with action by the government to correct public finances.

Portugal is enacting drastic spending cuts, tax rises and reforms of its economy in return for receiving rescue funding of 78 billion euros ($100 billion) from the EU and IMF in May 2011.

The target is for Portugal to be able to return fully to the sovereign debt market next year to finance its deficit and debt in the normal way, which it had been unable to do when a flight of confidence pushed its borrowing rates up to levels it could not afford.

However, some economists doubt that Portugal will be able to return fully to the market next year.

In the light of the auditors’ report, EU Economic Affairs Commissioner Olli Rehn said that Portugal continued to regain the confidence of financial markets and that this augured well for a return to the debt market.

But the austerity which underpins the reforms in Portugal is weighing heavily on economic activity and on unemployment.

The economy is expected to shrink by 3.0 percent this year and by 1.0 percent next year, and the unemployment rate reached 15.8 percent in the third quarter of this year.

The government is set to tighten policies further next year under a budget which will raise taxes and is likely to add to public discontent which has gained pace since September.