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 third October 2004.

For the ninth consecutive quarter, the operations of authorized entities with their customers in the Single and Free Exchange Market (MULC) registered positive balances. In the third quarter of 2004, these operations resulted in a surplus of US$ 1,467 million.

The BCRA’s net purchases in the market for US$ 1,410 million absorbed practically all of the MULC’s surplus. This monetization of the exchange surplus continued to represent the main source of increase in international reserves.

The volumes traded in the foreign exchange market in the quarter showed an increase of 25% compared to the same period in 2003, reaching a daily average of US$ 540 million. The BCRA’s operations in the foreign exchange market only represented 4% of the volume traded.

The current account of the foreign exchange balance registered a surplus in the quarter of US$ 1,850 million, a level slightly lower than the US$ 1,894 million in the third quarter of 2003.

Collections for exports of goods totaled US$ 7,512 million, showing a year-on-year growth rate of 20%. All sectors of the economy showed year-on-year growth in the level of collections in the quarter, with the exception of the oilseeds and cereals, and agriculture and livestock sectors.

In line with the increase in the level of activity and the strong year-on-year growth in shipments to the market, payments for imports of goods reached their highest level in the quarter since the entry into force of the MULC (US$ 5,006 million), with a year-on-year growth rate of 49%.

The foreign exchange capital and financial account resulted in net outflows of US$ 1,130 million, exceeding by almost US$ 500 million the deficit observed in the same quarter of the previous year. The largest deficit was due to operations with international organizations. While during the third quarter of 2003 operations with international organizations yielded net revenues of more than US$ 700 million, in the third quarter of this year they implied net payments of around US$ 600 million. The effect of these operations was partly offset by the decrease in both net foreign assets and net payments on financial loans.

The lower net demand for freely available foreign assets from the non-financial private sector compared to the third quarter of 2003 was mainly due to higher revenues, as gross foreign assets increased slightly.

For the first time since the entry into force of the MULC, net income from financial loans was recorded.

At the end of September, the BCRA’s stock of international reserves totaled US$ 18,224 million, exceeding the levels of the end of October 2001 and more than doubling the levels of mid-2002.

In the first nine months of 2004, the result of the MULC (US$ 5,017 million) was 17% higher than that observed in the same period of the previous year (US$ 4,285 million). The increase in export receipts in the first nine months of the year made it possible to cover the sharp increase in payments for higher purchases of goods, so that the positive balances of transfers for goods were of similar levels in the accumulated of the first nine months of each year (around US$ 9,950 million).