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 second quarter of 2009.

In the context of the international crisis that affected financing markets and trade flows of goods and services, the result of operations in the Single and Free Exchange Market (MULC) in the second quarter of 2009 totaled a deficit of US$ 347 million. In particular, the average monthly deficit of the foreign exchange market in the second quarter of US$ 116 million showed a positive evolution compared to the month of March, in which a negative result of US$ 2,163 million had been observed. This trend was consolidated in July with a practically balanced market, in which the slowdown in the demand for foreign currency from the private sector for the holding of foreign assets more than compensated for the lower seasonal settlement of foreign currency in the oil, oilseed and cereal export sector.

The quarterly result reflected an improvement in relation to the deficit results of US$ 3,613 million recorded in the second quarter of 2008 and about US$ 2,200 million in the first quarter of this year.

Within the framework of the managed floating exchange rate policy and in order to ensure the stability of the exchange and money markets in an adverse international context, the Central Bank continued to operate in the purchase and sale of foreign currency in the MULC, ending with a practically neutral balance in the quarter.

The BCRA’s international reserves ended June at US$ 46,026 million, registering a decrease of US$ 483 million in the quarter. The net debt payments of the public sector and the BCRA were the main explanation for the variation in reserves in the quarter. In any case, the stock remains at historically high levels, tripling the levels at the end of 2001 and quintupling the minimum values observed in mid-2002, representing about 100% of M2 in pesos (compared to about half in 2001) and about 40% of the total external debt (in 2001 they did not exceed 10%).

The current account of the exchange balance reached a surplus of US$ 4,590 million, a result similar to that recorded in the same quarter of 2008. The higher surplus from goods transfers, which reached an all-time high, was offset by the reversal in flows for services and higher net payments for rents.

Collections of exports of goods totaled US$ 15,446 million, showing a year-on-year drop of 14%. Likewise, payments for imports of goods reached US$ 8,821 million, registering a year-on-year decrease of 27%.

The operations of the foreign exchange capital and financial account resulted in a deficit of US$ 5,289 million, basically explained by the demand for foreign currency for the holding of foreign assets by the private sector. Net demand for freely available foreign assets was below the peak of approximately US$8.15 billion in the second quarter of 2008. Part of this demand was poured into local deposits in foreign currency (a symptom of confidence in the financial system), and another part is usually used by local companies to pay commitments through transfers from their foreign accounts.

After fourteen consecutive quarters of net income from financial loans, there were net cancellations by the private sector. There was also a slight slowdown in net inflows from non-resident direct investments.