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.

Executive summary

During 2023, the world economy faced high interest rates, in an attempt to contain
inflation, and experienced moderate economic growth. Given that inflation is declining in most regions
, an easing of financial conditions could be expected in 2024. However
, it is important to consider two factors. On the
one hand, there are geopolitical tensions that could
put upward pressure on commodity prices and prolong restrictive monetary policy measures. On the other hand, doubts have been raised about the speed of the aforementioned decrease in
inflation, which generates the expectation that interest rates in advanced countries could take longer to start falling. Regarding the prospects for global economic growth, there are certain concerns linked to the complications in China’s stock and real estate markets, which could have a negative impact on international performance.
At the local level, in line with what was decided by the authorities and announced in the monetary and exchange rate policy objectives and plans
for 2024, a zero monetary financing target for the National Treasury was set for 2024. In addition, in February, the award of series 2 of BOPREAL, a security issued in U.S. dollars for importers so that they can meet their commercial debt commitments, was completed and the tender for series 3 began.
During February, the entities’ customers sold USD 2,279 million in the foreign exchange market, while the entities sold USD 61 million. For its part, the BCRA bought USD 2,358 million in the foreign exchange market and made net payments through the Local Currency Payment System (SML) for USD 17 million.
The “Non-Financial Private Sector” was a net seller of foreign currency for USD 2,611 million in the
foreign exchange market. Within this group, the “Real Sector excluding Oilseeds and Cereals” was the main sector offering foreign currency, registering net revenues of USD 1,593 million, largely explained by its result under the heading “Goods”. In turn, the “Oilseeds and cereals” sector recorded net revenues of USD 1,248 million, 61% more than in the same month of 2023.
“Individuals” netly purchased USD 229 million, mainly for travel expenses and other consumption made with cards with non-resident suppliers (with a net result of USD 227 million). The “Institutional Investors and Others” sector, both resident and non-resident, made net purchases in the month for USD 1 million.
The foreign exchange current account registered a surplus of USD 1,576 million in February, explained by the
surpluses of the Goods and Secondary Income accounts of USD 3,059 million and USD 13 million,
partially offset by the deficit of the Primary Income and Services accounts of USD 1,263 million and USD 232 million, respectively.
The financial account of the “Non-Financial Private Sector” registered a deficit of USD 471 million in February. This result was composed of the records of exchange operations for net transfers abroad for USD 384 million (mainly explained as the counterpart of foreign exchange market and exchange balance / February 2024 | BCRA | 5 exports of the real sector of goods and services not settled in the foreign exchange market and freely available foreign exchange earnings), for the net outflows of other foreign financial debts and debt securities for USD 155 million, for the cancellations of balances in foreign currency with local entities for the use of cards with non-resident suppliers for USD 147 million (which do not entail a net demand for foreign currency in the financial account) and by cancellations of loans from international organizations for USD 22 million, partially offset by net income from foreign assets for USD 94 million, from local financial loans for USD 61 million, from foreign direct investment for USD 58 million, from income from the sale of securities for USD 21 million.
The operations of the foreign exchange financial account of the “Financial Sector” resulted in a deficit of USD 569 million. This result was explained by the increase in the liquid foreign assets of the entities that make up the General Exchange Position (PGC) by USD 522 million, by the net purchase of securities by USD 9 million and by the net outflows from financial loans and credit lines by USD 38 million.
The operations of the foreign exchange financial account of the General Government and the BCRA were in deficit by USD 1,715 million, mainly explained by the net outflows of loans from international organizations
(excluding the IMF) for USD 1,755 million and by the payments of other financial loans for USD 207 million, partially offset by the records for the counterpart of expenditures for exchange operations abroad for USD 244 million.
In February, the BCRA’s international reserves decreased by USD 951 million, ending the month at a level of USD 26,690 million. This decrease was mainly explained by the net outflows of interest and other financial debt of the General Government and BCRA for USD 1,916 million, for the net payments of interest and commissions to the International Monetary Fund for USD 846 million (SDR 636 million),
for the fall in the foreign currency holdings of the entities in the BCRA for USD 478 million. due to the decrease in the price in U.S. dollars of the assets that make up the reserves by USD 52 million, partially offset by the net purchases of the BCRA in the foreign exchange market for USD 2,358 million.