ROME: Italys long-term cost of borrowing has remained high as worries about the eurozone debt crisis continue.The Italian government raised around 7bn euros ($8.96bn, 5.86bn) of medium and long-term debt on Thursday, according to a British Broadcasting Corporation report.The interest rate on Italian 10-year bonds was 6.98 per cent, viewed as unsustainably high by investors.Italy has 161bn euros in debt repayments due between February and April, all of which it will have to finance through new borrowing.Following the auction the euro fell to its lowest level against the dollar for 15 months, at $1.287.The interest rate on Italys ten-year debt was just over 0.5 percentage points lower than the 7.56 per cent it had to pay at its last auction of 10-year bonds on 30 November.Economists had hoped for a larger fall to make Italys interest repayments more sustainable."The rate is still quite high but the most important thing is they are finding buyers for their debt," said Neville Hill, European economist at Credit Suisse."Auctions held yesterday and today went rather well"Monti: unite to save the eurozoneItalys short and medium-term cost of borrowing fell significantly.The government paid 5.62 per cent on new three-year debt, down from the 7.89 per cent paid a month ago.On Wednesday, the country raised 9bn euros ($11.8bn, 7.56bn) of very short-term debt at far lower borrowing costs.In a press conference Italys new Prime Minister, Mario Monti, said he was "relieved" by the auctions."Auctions held yesterday and today went rather well, but the financial turbulence absolutely isnt over," said the former economist and EU commissioner.The auctions were the first since the European Central Bank provided European lenders with 489bn euros of its new three-year loans just before Christmas.Just over half of the money was used to service banks existing debts leaving lenders with around 190bn euros in spare cash to invest elsewhere, possibly including government bonds.The injection of money into the banking system may have reduced Italys short-term borrowing costs.The latest auction came on a day of mixed economic news for the single currency bloc.The euro fell sharply against most major currencies, reaching 100.35 against the yen, its lowest level since July 2001 and a 15-month low against the dollarSpains central bank has said that its economy shrank in the final 3 months of 2011 based on incomplete economic dataItalian business confidence in December fell, according to official data from Istat. Confidence fell most sharply in the construction and retail sectorsMarkets were affected by the news that European banks had deposited record amounts overnight with the European Central Bank, raising fears of a credit crunch.One interpretation of this increased usage of the ECBs deposit facility is that it reflects nervousness among Europes banks about lending the money to each other due to the economic uncertainty."It could be a sign of market tension," said James Ashley a senior economist at the Royal Bank of Canada."But there are a number of other interpretations. We dont know which banks are depositing and in which size."Some suggest, instead, that the increased use of the facility is simply a response to the recent intervention by the ECB.
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