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 the first quarter of 2016.

Main aspects

The operations arranged by the entities authorized to operate in foreign exchange with their clients in the Single and Free Exchange Market (MULC) resulted in a deficit of US$ 1,481 million in the first quarter of 2016.

In a different context in the previous year, the results of operations with customers in the MULC had resulted in deficits of US$ 1,021 million and about US$ 6,850 million in the first and fourth quarters of 2015, respectively

After two consecutive quarters with a deficit, net transfers by goods resulted in a surplus of US$ 3,356 million in the quarter, showing an increase of almost US$ 1,650 million compared to the surplus of the same quarter of the previous year, basically due to higher revenues from the oilseeds and cereals sector.

Other net sources of funds from the foreign exchange market turned out to be the income from financial loans from abroad for about US$ 1,900 million, highlighting the placements of local governments for US$ 1,250 million and the disbursements of international organizations destined to different public sector programs for about US$ 300 million, basically for investment in infrastructure. education and health, among others. Likewise, net income from non-residents from direct investment was around US$ 510 million and for portfolio investment exceeded US$ 170 million, implying a year-on-year increase between both concepts of about US$ 280 million.

On the side of the uses of foreign currency, the net formation of freely available foreign assets of the non-financial private sector for US$ 4,237 million was highlighted, from the enabling of natural and legal persons the possibility of buying foreign currency and other foreign assets for up to the sum of US$ 2 million per month. This total can be broken down into net purchases of banknotes for US$ 3,300 million and net transfers abroad for about US$ 940 million. Part of the purchases of banknotes remain in the financial system through the constitution of deposits in foreign currency of the private sector, which rose during the quarter by about US$ 1,250 million, taking the stock to about US$ 11,800 million, the highest level since mid-2012.

Net purchases from tourism and travel and tickets were around US$ 2,200 million in the quarter, showing a year-on-year increase of about US$ 360 million, being the main factor explaining the increase in net outflow for services. On the other hand, net remittances abroad in the form of income totaled about US$ 800 million, including profit transfers and dividends for about US$ 300 million.

The Central Bank made net sales in the foreign exchange market for US$ 28 million, through one-off participations within the framework of its managed floating exchange rate scheme. This amount, together with payments for foreign trade operations channeled through the Local Currency Payment System (SML) in force with Brazil and by ALADI for US$ 295 million, meant a total of US$ 323 million.

On the other hand, cancellations of capital and interest services on foreign currency debt for obligations with international organizations and with holders of public sector securities totaled US$ 841 million in the quarter.

Among the main sources of increase in international reserves, the income of US$ 5,000 million from passive pass operations in US dollars with seven banks for a term of approximately one year, with the possibility of prior cancellation, was highlighted.

Current account operations in the foreign exchange balance were practically neutral in the quarter, showing a deficit reduction of about US$ 1,800 million compared to the same period of the previous year, basically explained by higher net merchandise revenues.

Settlements for export collections totaled US$ 13,811 million in the quarter, which implied an increase of 7% compared to the same quarter of the previous year. Revenues from the oilseeds, oils and cereals sector amounted to US$ 6,766 million, an amount 69% higher in year-on-year terms, driven by the implementation of a series of measures that encouraged an increase in the quantities registered for sale abroad, which was greater than the reductions observed in the prices of export products. On the contrary, liquidations of the rest of the sectors totaled US$ 7,044 million, registering a contraction of 21% in year-on-year terms, a fall that was reflected in practically all export sectors.

Payments for imports of goods in the exchange balance totaled US$ 10,501 million, the lowest value of expenditures for the concept since the second quarter of 2010 and which represented a year-on-year decrease of 6%, within the framework of the monthly scheme dictated by law to meet pending payments of imports of goods prior to 17.12.15 with full impact on the quarter and which were completely released as of 22.04.16.

The capital and financial account of the foreign exchange balance registered a surplus of US$ 3,549 million, mainly as a result of net income from the public sector and BCRA for approximately US$ 5,841 million and from financial sector entities for approximately US$ 470 million. These revenues were partially offset by net expenditures from the non-financial private sector (NFPS) of US$ 3,572 million.

As a result, the BCRA’s gross international reserves reached a stock of US$ 29,572 million at the end of March 2016, implying an increase of US$ 4,008 million in the first quarter of the year.