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 2011.

Main aspects

The operations carried out by the entities authorized to operate in foreign exchange with their customers in the Single and Free Exchange Market (MULC), showed a positive balance of about US$ 1,000 million in the first nine months of the year, accumulating in the last four quarters a surplus of approximately US$ 3,900 million. The positive balances of the previous quarters offset the deficit of US$ 3,311 million in the third quarter of 2011.

The reversal in the quarterly result compared to that recorded in the second quarter of the year (surplus of US$ 1,726 million) was due to the decrease in the surplus for goods both due to lower revenues due to seasonal reasons from export collections and higher payments for imports compatible with higher levels of foreign purchases, and to the greater demand for foreign currency due to the change of private portfolios as is usually observed in the periods pre-election, together with the effects of the global uncertainty generated by the deepening of the international financial crisis from the macroeconomic imbalances of the central countries.

Within the framework of the policy of prudential administration of international reserves and managed floating of the exchange rate, the quarterly deficit of the MULC was covered with net sales of foreign currency by the Central Bank for approximately US$ 2,650 million and sales of foreign currency holdings of entities authorized to operate in foreign exchange that, to a large extent, they were deposited in the Central Bank itself. Likewise, in the period, debt payments of the National Government were faced, among which the payment of Boden 2012 services with a net effect on reserves, for approximately US$ 1,900 million, stood out. These uses of international reserves were partly offset by the net foreign exchange income of the public sector and the BCRA, resulting in a decrease in the BCRA’s international reserves of US$ 3,106 million in the quarter.

As a result, the BCRA’s international reserves totaled US$ 48,590 million at the end of September 2011, continuing at historically high levels both in relation to external debt and domestic monetary aggregates (in the order of 40% of external debt and 70% of total M2 in pesos).

The operations included in the current account of the foreign exchange balance showed a positive balance of US$ 619 million in the quarter. The fall of about US$ 2,560 million compared to the result of the same quarter of the previous year, was basically due to the lower net income from commercial operations of goods and services, and the higher remittances of profits and dividends. The surplus of the foreign exchange current account in the first nine months of the year totaled US$ 6,080 million.

Collections of exports of goods totaled US$ 21,319 million, which implied a year-on-year increase of 18%. Likewise, payments for imports of goods reached a quarterly record of US$ 18,459 million, registering a year-on-year increase of 34%.

On the other hand, the foreign exchange capital and financial account was in deficit by US$ 3,773 million, increasing about US$ 1,880 million compared to the negative result of the same quarter of 2010 (US$ 1,896 million).

The increase in net demand for freely available foreign assets compared to the second quarter of the year was basically explained by the higher net purchases of foreign currency banknotes, especially by the group of savers with smaller amounts.

Net purchases of foreign currency banknotes by residents totaled US$ 7,039 million in the quarter. Net purchases by residents of freely available foreign currency remained at values similar to those observed during the third quarter during the month of October. As of the measures at the end of October, there was a sharp decrease in the completion of these operations in November, which fell to values that represent a quarter of the net purchases made in the last part of the quarter under analysis.

Disbursements of medium- and long-term financial loans from the non-financial private sector reached an all-time high of around US$ 3,000 million. For the fifth consecutive quarter, net inflows from financial loans from the non-financial private sector (NFPS) were recorded again, totaling about US$ 800 million in the third quarter.

Gross receipts from direct investments in the non-financial private sector totaled US$ 785 million, representing a year-on-year increase of 24%. Those destined to the mining (US$ 198 million), food, beverages and tobacco (US$ 100 million), and trade (US$ 76 million) sectors stood out.