Report on the Evolution of the Foreign Exchange Market and the Foreign Exchange Balance

Report on the evolution of purchases and sales of foreign currency in the foreign exchange market.

Main aspects

The world economy is growing at a modest pace, but with favorable prospects. There is evidence of a divergence in the evolution of the different economies, mainly between the poor performance of the advanced economies of Europe and the strong growth of the United States and some emerging economies. Particularly for the United States, the European Union, and much of Latin America, the initial decline and subsequent stability in the inflation rate allowed monetary authorities to first reduce and then sustain their benchmark interest rates. An exception was the Central Bank of Brazil (BCB), which increased the SELIC rate three times, aiming to align inflation expectations with its target.

At the local level, on December 22, the validity of the PAIS tax came to an end, so the ARCA, through General Resolution 5617/2024 of December 19, once again legislated the collection of 30% income
tax. It is maintained for the purchase of foreign currency for hoarding, imports of consumer goods (mainly cars and luxury goods) and payments for services abroad with
cards.

Regarding the result in the December foreign exchange market, the BCRA arranged net purchases for USD 902 million, USD 525 million from the entities and USD 295 million from the entities’ customers, while it made net payments through the Local Currency Payment System (SML) for USD 82 million. In turn, the National Treasury bought USD 1,500 million directly from the BCRA.

The “Non-Financial Private Sector” was a net seller of foreign currency for USD 682 million in the foreign exchange market. Within this group, the “Oilseeds and Cereals” sector was the main sector offering foreign currency, registering net revenues of USD 2,028 million, largely explained by its result under the heading “Goods”. For its part, the “Real Sector excluding Oilseeds and Cereals” recorded net outflows of USD 883 million. “Individuals” recorded net outflows of USD 434 million, mainly for expenses for travel, tickets and other consumption made with cards with non-resident suppliers. It should be noted that around 60% of these card purchases are subsequently paid directly by customers with their own funds in foreign currency, which reduces the deficit impact of these purchases on the foreign exchange market and international reserves.

In what was the exchange balance of December, current account operations registered a deficit of USD 1,114 million, explained by net outflows in the “Services”, “Primary Income”, “Goods” and “Secondary Income” accounts for USD 526 million, USD 523 million, USD 39 million and USD 26 million, respectively. In turn, the foreign exchange financial account was in surplus of USD 749 million in
December. This result was explained by the surpluses of the “Non-Financial Private Sector”, the “Financial Sector” and the “National Government and BCRA” of USD 1,334 million, USD 1,324 million and USD 999
million, partially offset by expenditures in the “Other Net Movements” account of USD 2,908 million.

The BCRA’s international reserves decreased by USD 603 million in December, ending the month at a level of USD 29,612 million. This result was mainly explained by the fall in the foreign currency holdings of the entities in the BCRA by USD 1,306 million, capital cancellations of national public securities by USD 328 million, by the fall in the price in US dollars of the assets that make up the reserves by USD 244 million, net outflows from the BCRA’s own operations by USD 232 million and by the net payments made by the BCRA through the Local Currency Payment System (SML) for about USD 80 million. The aforementioned movements were partially offset by net capital inflows and interest on loans from international organizations (excluding the IMF) for USD 1,366 million and by the settlements of net purchases by the BCRA in the foreign exchange market for USD 700 million.