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 quarter of 2009.

The policies implemented by the Central Bank managed to maintain stability in the exchange, monetary and financial markets, which resulted in a sharp slowdown in the demand for foreign currency for holdings of foreign assets by the private sector, in a context of improvement in the international financial climate. In this sense, the result of operations in the Single and Free Exchange Market (MULC) returned to surplus during the third quarter of 2009, totaling a surplus of about US$ 350 million, after five consecutive quarters of deficit.

In addition to the significant drop compared to previous quarters, the demand for foreign currency for private portfolio exchange registered a marked downward trend throughout the quarter, ending practically neutral in the last week of the period. September saw the lowest monthly level since the beginning of the subprime crisis in the United States in July 2007, totaling approximately US$ 500 million.

In addition to the surplus from operations with customers in the MULC, the entities authorized to operate in foreign exchange made net sales of their own holdings, increasing the net supply of foreign currency in the foreign exchange market.

The current account of the exchange balance reached a surplus of US$ 2,075 million, showing a fall of about US$ 2,900 million compared to the surplus of the same quarter of 2008, mainly explained by the lower net income from goods and, to a lesser extent, by the reversal in flows from services.

Collections of exports of goods totaled US$ 12,329 million, implying a year-on-year drop of 36%. Likewise, payments for imports of goods reached US$ 9,170 million, registering a year-on-year decrease of 33%.

The operations of the foreign exchange capital and financial account resulted in a deficit of US$ 2,926 million, about US$ 2,100 million lower than the deficit observed in the third quarter of 2008, the main explanation for this improvement being the lower net demand for foreign assets by residents by about US$ 2,800 million.

After the net cancellation of financial loans by the non-financial private sector observed in the previous quarter, net income from this concept was again recorded through the MULC, which reached US$ 314 million in the period. Net inflows from direct investment by non-residents also continued to be recorded.

The BCRA’s international reserves ended September with a stock of US$ 45,348 million1, decreasing by US$ 678 million in the quarter. The maturity of capital and interest services of the Boden 2012 at the beginning of August faced with holdings of the National Treasury that were deposited in the Central Bank was the main explanation for the variation in the period. This payment was largely offset by the Central Bank’s net purchases of foreign currency in the foreign exchange market and the increase in the foreign currency accounts of the entities in the BCRA (partly as a counterpart to the increase in local deposits in foreign currency, largely funded by the collection of Boden 2012 coupons held by residents).