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

This report analyzes the evolution of purchases and sales of foreign currency in the foreign exchange market, corresponding to February.

Main aspects

Global economic activity continued to slow in recent months and global growth forecasts continued to decline. This scenario occurred in a scenario in which the persistence of high inflation led central banks in advanced economies to implement the largest cycle of contractionary monetary policy since the global financial crisis of 2008/09. While financial conditions for developing countries improved at the margin, a mostly adverse environment of high interest rates and net capital outflows still prevails.

In February, the entities’ customers bought USD 844 million in the foreign exchange market, of which the BCRA sold USD 750 million in the market and made net payments through the Local Currency Payment System for USD 69 million, while the entities sold USD 25 million.

The “Non-Financial Private Sector” was a net buyer of foreign currency for USD 667 million in the foreign exchange market. Within that group, the main sector in terms of net sales, “Oilseeds and cereals”, recorded net revenues of USD 776 million, 69% less than in the same month of 2022. The sector continued to partially cancel during February the net debt it had at the end of last year within the framework of the “Export Increase Program”. It should be noted that the cancellation of this type of indebtedness does not imply an outflow of foreign currency, but occurs when the export of previously financed goods materializes.

The “Real Sector excluding Oilseeds and Cereals”, was a net buyer of foreign currency for a total of USD 810 million, exhibiting a year-on-year reduction of 60%. These purchases were mainly used to make net interest payments, imports of goods and services, and travel expenses and other card payments.

“Individuals” bought USD 503 million net, mainly for card expenses for consumption with non-resident suppliers (with a net of USD 332 million) and for hoarding (with a net of USD 130 million for ticket purchases).

The “Institutional investors and others” sector, both residents and non-residents, made net purchases in the month for USD 130 million, mainly for imports of goods.

The foreign exchange current account, which includes net flows from net exports of goods and services and primary and secondary income, registered a deficit of USD 1,237 million. This result was explained by net outflows from the “Primary income”, “Services” and “Secondary income” accounts of USD 1,142 million, USD 653 million and USD 14 million, respectively, partially offset by net income from transfers for goods of USD 572 million.

The financial account of the “Non-Financial Private Sector” had a deficit of USD 713 million in February, highlighting the outflows of financial loans and debt securities for USD 248 million, the records for the cancellations of balances in foreign currency with local entities for the use of cards with non-resident suppliers for USD 237 million (which do not entail a net demand for foreign currency in the financial account)1, the records of expenditures for exchange operations for transfers abroad for USD 123 million (largely explained as a counterpart to income from travel and tickets, for more information see Section III.1.2.), loan payments to international organizations for USD 52 million and the formation of foreign assets for USD 11 million, partially offset by foreign direct investment income of USD 54 million.

In February, the operations of the foreign exchange financial account of the “Financial Sector” resulted in a surplus of USD 69 million. This result is explained by the decrease of USD 114 million in the liquid foreign assets of the entities that make up the General Exchange Position (PGC), partially offset by expenditures for the concepts of financial loans and credit lines for USD 45 million.

On the other hand, the operations of the foreign exchange financial account of the General Government and the BCRA were in deficit by USD 218 million, mainly explained by net cancellations of capital and interest on financial debt.

In February, the BCRA’s international reserves fell by USD 2,708 million, ending the month at a level of USD 38,709 million. This fall was mainly explained by the BCRA’s intervention in the foreign exchange market mentioned above, by the payments of interest and commissions to the International Monetary Fund for USD 750 million (equivalent to SDR 554 million), by the fall in the price in US dollars of the assets that make up the reserves for USD 733 million and by net cancellations of principal and interest on debt of the National Treasury.