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 2010.

Main aspects

Operations in the Single and Free Exchange Market (MULC) of authorized entities with their clients totaled a surplus of US$ 3,309 million in the third quarter of 2010, reaching the maximum surplus for a third quarter since the MULC began operating in February 2002. This result occurred in a context characterized by the sustained trade surplus of goods, the slowdown in the demand for foreign currency for holdings of foreign assets by the private sector, and the improvement in external financial conditions reflected in the decrease in country risk premiums.

Within the framework of the Central Bank’s exchange rate policy and prudential accumulation of international reserves, it made net purchases of foreign currency in the foreign exchange market for US$ 3,582 million in the quarter, absorbing both the surplus of the MULC and the net sales of its own freely available holdings in foreign currency of financial institutions. They also contributed to the increase in reserves, the return on foreign investment (largely due to the appreciation of the euro and gold) and the banks’ minimum cash holdings in return for the increase in local deposits in foreign currency.

On the side of the uses of international reserves, the net payments of debt (principal and interest) of the public sector and BCRA for about US$ 2,950 million stood out. As a result, international reserves registered a quarterly increase of US$ 1,885 million, totaling US$ 51,125 million at the end of the third quarter of 2010, which constituted one of the highest levels reached in the records of the Central Bank’s holdings.

The current account of the exchange balance resulted in a surplus of US$ 3,171 million, an amount about US$ 1,100 million higher than that recorded in the same quarter of the previous year as a basically reflection of the higher net income from foreign trade operations of goods.

Collections of exports of goods totaled US$ 18,025 million, which implied a year-on-year increase of 46%, highlighting the collections of the oilseed and cereal export sector for US$ 7,729 million, which showed a year-on-year increase of 88%.

Payments for imports of goods reached US$ 13,765 million, a level that constituted an all-time high of the MULC, with a year-on-year increase of 50%. The year-on-year increase was largely driven by payments from the automotive, energy and chemical sectors, with increases of 68%, 93% and 39%, respectively.

The foreign exchange capital and financial account resulted in a deficit of US$ 1,892 million, improving about US$ 1,000 million compared to the negative result of the same quarter of the previous year. This improvement was mainly due to higher financial loan disbursements and lower net demand for foreign assets by the private sector.

Net demand for freely available foreign assets by residents registered a decrease of 16% compared to the same quarter of the previous year and 13% compared to the second quarter of 2010. These variations are accentuated to 37% if the year-on-year comparison of the accumulated for the year is made.

Within the net income from financial loans, new placements of debt securities in international markets by both local governments and private sector companies stood out.