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 January.

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 January, the entities’ customers bought USD 802 million in the foreign exchange market, of which the BCRA sold USD 417 million in the market and made net payments through the Local Currency Payment System for USD 39 million, while the entities sold USD 345 million. In addition, purchases were registered by the National Treasury directly with the BCRA for the equivalent of USD 967 million.

The “Non-Financial Private Sector” was a net buyer of foreign currency for USD 685 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 798 million, 69% less than in the same month of 2022. The sector partially canceled during January the net debt it had the previous month 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 816 million, exhibiting a year-on-year reduction of 60%. The purchases were mainly intended to make payments for imports of goods and services.

“Individuals” bought USD 551 million net, mainly for card expenses for consumption with non-resident suppliers (with a net of USD 374 million) and for hoarding (with a net of USD 139 million for ticket purchases).

The “Institutional investors and others” sector, both residents and non-residents, made net purchases in the month for USD 116 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 1,651 million. This result was explained by net outflows from the “Primary income” and “Services” accounts of USD 1,352 million and USD 725 million, respectively, partially offset by net income from transfers for goods of USD 414 million.

It should be noted that, in January, gross travel and ticket revenues increased by 78% compared to the previous month and reached USD 164 million, the highest value since January 2020. This increase occurred after the BCRA’s decision to exclude such operations from the requirement of settlement in the foreign exchange market, which allows recipients of foreign currency to apply a higher exchange rate to card purchases in the country by non-resident tourists.

The financial account of the “Non-Financial Private Sector” had a deficit of USD 304 million in January, highlighting the records for the cancellations of balances in foreign currency with local entities for the use of cards with non-resident suppliers for USD 228 million (which do not entail a net demand for foreign currency in the financial account). the records of expenditures for exchange operations for transfers abroad for USD 132 million (largely explained by the recording of the counterpart of income from travel and tickets, for more information see Section III.1.2.) and the formation of foreign assets for USD 81 million, partially offset by income from financial loans and debt securities for USD 79 million and foreign direct investment for USD 52 million.

In January, the operations of the foreign exchange financial account of the “Financial Sector” resulted in a surplus of USD 875 million. This result is explained by the decrease of USD 907 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 32 million.

On the other hand, the operations of the foreign exchange financial account of the General Government and BCRA were in deficit by USD 3,138 million, mainly explained by gross capital payments to the International Monetary Fund for an equivalent of USD 2,641 million (1,975 million SDRs).

In January, the BCRA’s international reserves fell by USD 3,181 million, ending the month at a level of USD 41,417 million. This fall was mainly explained by capital payments to the International Monetary Fund, principal and interest payments by the National Government in foreign currency, BCRA sales in the foreign exchange market and net payments by the BCRA through the Local Currency Payment System, movements that were partially offset by the rise in the price in US dollars of the assets that make up the reserves and by the increase in the holdings of entities in the BCRA.