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 fourth quarter of 2010.

Main aspects

Completing three consecutive quarters of strong surpluses in the local foreign exchange market, operations with customers in the Single and Free Exchange Market (MULC) totaled a surplus of US$ 2,885 million in the fourth quarter of 2010.

The sources of funds in the foreign exchange market were basically given by the sustained surplus from transfers for goods and net income from financial loans. In the context of a highly liquid international market, and a reduction in the country risk premium, which was aided by the second public debt swap carried out in the middle of the year, the placement of medium- and long-term debt securities in the international markets of both local governments and private sector companies accelerated.

Continuing with the policy of managed floating of the exchange rate and prudential accumulation of international reserves, the Central Bank made net purchases of approximately US$ 3,250 million in the quarter, absorbing the surplus of the MULC and net sales of foreign currency holdings of the entities authorized to operate foreign exchange. On the side of the applications of reserves, the net payments of debt (principal and interest) in foreign currency of the public sector and BCRA for about US$ 1,900 million stood out. As a result, the BCRA’s international reserves registered a quarterly increase of US$ 1,065 million, closing 2010 with a stock of US$ 52,190 million, a level that was a record considering the historical records at the end of each calendar month.

The current account of the foreign exchange balance resulted in a surplus of US$ 934 million, up from the practically balanced result of the same quarter of the previous year. This basically reflected lower interest payments, as there were no accruals in the income coupons of public bonds tied to GDP growth, an effect partially offset by lower net income from commercial operations of goods and services.

Collections of exports of goods totaled US$ 17,558 million, which implied a year-on-year increase of 33%, highlighting the collections of the oilseed and cereal export sector for US$ 6,108 million, which showed a year-on-year increase of 74%.

Payments for imports of goods reached a quarterly record of US$ 14,722 million, registering a year-on-year increase of 45% as a reflection of the growth in the level of activity.

Although the capital and financial account of the non-financial private sector once again registered a negative balance (US$ 861 million), it continued to reflect an improvement compared to previous quarters, explained by the slowdown in the net demand for foreign assets and the higher net inflows from medium and long-term financial loans.