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 first quarter of 2010.

Main aspects

In line with the behavior observed in the external sector since the exit from Convertibility, the current account of the Argentine exchange balance continues to show positive balances. The surplus of the last four calendar quarters represented about 3% of the Gross Domestic Product (GDP).

The purchase and sale of foreign currency of customers with entities authorized to operate in foreign exchange in the Single and Free Exchange Market (MULC), which reached a volume of around US$ 45,100 million, were practically balanced in the first quarter of the year, showing a deficit of US$ 85 million.

As in previous quarters, the behavior of the foreign exchange market was basically determined by the positive balances of transfers by goods, in line with the sustained trade surplus, and by the capital movements of residents who are sensitive to changes in expectations that originate in short-term events that are not necessarily related to the underlying situation of the foreign exchange market. These movements were mainly reflected in the demand for banknotes in foreign currency with a strong participation of retail operations, without significant effects on wholesale operations that are channeled through the formation of foreign assets with transfers abroad, nor in relation to the income of external financing under its different modalities, including income from direct investments by non-residents.

On the other hand, in view of the different alternatives they had throughout the quarter, the entities, on the one hand, decreased their own holdings in foreign currency by about US$ 1,600 million, mainly in internal assets in the Central Bank and, to a lesser extent, in foreign assets that make up the general exchange position, due to the granting of new local loans in foreign currency and with the monetization of part of these holdings. and on the other hand, they increased their net purchased position in forward operations in foreign currency. This behavior represented a strong net supply of foreign currency in the spot exchange market.

In this context, the Central Bank made net purchases for approximately US$ 1,230 million in the quarter. Likewise, the BCRA arranged net sales of local securities liquidable in foreign currency for about US$ 100 million.

The current account of the foreign exchange balance for the first quarter of 2010 resulted in a surplus of US$ 2,190 million, with a decrease compared to the surplus recorded in the same quarter of the previous year, a situation basically explained by the lower net income from goods and by the higher remittances abroad of profits and dividends through the foreign exchange market.

Collections of exports of goods totaled US$ 12,920 million, which implied a year-on-year increase of 6%. Likewise, payments for imports of goods reached US$ 9,722 million, registering a year-on-year increase of 13%. Total collections were in line with exports of goods for the period, while payments accounted for about 92% of goods imports for the period.

The foreign exchange capital and financial account resulted in a deficit of US$ 2,493 million, explained by the deficit of US$ 3,384 million in the capital and financial account of the Non-Financial Private Sector (NFPS). However, the NFPS capital operating deficit in the first quarter of 2010 was lower than in the first two quarters of 2009.

Both the negative result of the NFPS capital and financial account for the period and the reversal with respect to the previous quarter basically reflected the behavior of the demand for foreign assets freely available to residents. However, net purchases of foreign currency banknotes by residents slowed sharply from mid-February, closing March at levels well below both the highs and the average for the quarter.

The BCRA’s international reserves decreased by US$ 508 million in the quarter, ending with a balance of US$ 47,460 million. This level is about US$ 950 million higher than that observed at the end of March 2009 and continues to be historically high both in relation to external debt and to domestic monetary aggregates.