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 2012.

Main aspects

Operations in the Single and Free Exchange Market (MULC) of the entities authorized to operate in foreign exchange with their customers showed a surplus of US$ 3,068 million in the first quarter of 2012. This strengthening of the reversal in the results of the foreign exchange market that was recorded as of November 2011, largely reflected the effects of the measures adopted at the end of October to limit the outflow of capital and eliminate the exceptions to the obligation to pay for the collection of exports of hydrocarbons and mining. together with greater monitoring in the administration of imports of goods and certain payments abroad.

The MULC surplus for the first three months of 2012 implied an increase of about 20% compared to the surplus recorded in the same period of 2011 and is among the largest in the series for a first quarter, only below the record reached in 2007.

The sources of funds in the foreign exchange market were basically the surplus of transfers by goods, the net disbursements of financial loans, especially medium and long-term, and the income from direct investments by non-residents.

On the expenditure side, the demand for foreign assets by residents stood out, although with the significant slowdown observed from the measures established for the purchase of foreign currency arranged at the end of October, and payments for services and rents.

Within the framework of the policy of prudential accumulation of international reserves and managed floating of the exchange rate, the Central Bank made net purchases of approximately US$ 3,600 million in the quarter, absorbing both the surplus of the MULC (US$ 3,068 million) and the net sales of own holdings of free availability of the entities authorized to operate in foreign exchange (US$ 500 million).

On the side of the applications of reserves, the net payments of capital services and interest on debt in foreign currency of the public sector and BCRA for approximately US$ 1,450 million and the withdrawal of holdings in foreign currency in passes and deposits of the entities in the BCRA for about US$ 1,200 million stood out. These withdrawals were intended to monetize entities’ foreign currency holdings, cover net withdrawals of local deposits in foreign currency, and net granting of local foreign currency credits. As a result of these movements, the BCRA’s international reserves increased by US$ 915 million in the quarter.

The operations of the current account of the foreign exchange balance resulted in a surplus of US$ 2,300 million, increasing about US$ 750 million compared to the result of the same quarter of the previous year, basically due to the greater surplus in transfers for goods.

Collections of exports of goods totaled US$ 18,587 million, showing a year-on-year increase of 18%, highlighting the increases of 19% in oilseeds and cereals, and oil and mining, each by around 50% due to the regulatory modification at the end of October 2011 that established the obligatory nature of entry and negotiation in the exchange market of the export collections of both sectors. For its part, payments for imports of goods through the MULC reached US$ 14,939 million, showing a year-on-year growth of 12%.

New export pre-financing granted by local banks totaled US$ 2,346 million, a level that showed an increase of 13% in year-on-year terms and that constituted a maximum for a first quarter since the entry into force of the MULC.

The foreign exchange capital and financial account was in deficit by US$ 1,630 million, implying a year-on-year improvement of approximately US$ 1,100 million.

Net purchases of freely available foreign assets by residents totaled US$2,271 million, averaging about US$750 million per month, a level equivalent to a quarter of the average demand for the third quarter of 2011 and similar to the monthly average observed in the two months of November-December 2011, based on the measures established for the purchase of foreign currency at the end of October.