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.

Main aspects

The global economy has tended to slow in recent months, with core inflation persisting in many advanced economies and easing in much of emerging and developing economies. Central banks in the former maintain or even raise interest rates, while those in the latter have begun to reduce them. A scenario of “higher rates for longer” is consolidating in the markets, with its impact on bonds and stocks, and currencies. The U.S. dollar, which had been depreciating so far this year, has appreciated at the margin; this is also reflected in the prices of raw materials.
Agricultural commodities and oil show some retraction. On Monday, October 2, decree 492/20231 was published, reinstating the “Export Increase Program”, which was in force until the 25th of the same month. Similar to the last edition, exporters were allowed to settle 75% of foreign currency at the official exchange rate, while the remaining 25% had to be channeled through purchase and sale transactions with negotiable securities acquired with settlement in foreign currency and sold with settlement in local currency. Likewise, through Decree 549/20232 of Monday 23, a new “Export Increase Program” was introduced, in which it was decided to cover the entire export complex, both of goods and services and, in addition, allows exporters to settle 70% of the foreign currency at the official exchange rate, being able to channel the remaining 30% through purchase/sale operations with negotiable securities acquired with settlement in currency
and sold with settlement in local currency. Its validity was extended until November 17.
In this context, during October, the clients of the entities bought USD 549 million in the
foreign exchange market, while the BCRA and the entities sold USD 492 million and USD 19 million in the foreign exchange market, respectively. In turn, the BCRA made net payments through the Local Currency Payment System for USD 39 million.
The “Non-Financial Private Sector” was a net buyer of foreign currency for USD 346 million in the
foreign exchange market. Within that group, the main sector in terms of net sales, “Oilseeds and cereals”, recorded net revenues of USD 465 million, 46% less than in the same month of 2022. The lower net income from goods in the sector during October is due to the effects of the drought on the exportable product and, in addition, to the fact that a portion of the export receipts are not recorded in the foreign exchange market, since it is settled through the stock market under the framework of the aforementioned “Export Increase Program” (see Section II).
The “Real Sector excluding Oilseeds and Cereals” was a net buyer of foreign currency for a total of USD 11 million, exhibiting a year-on-year reduction of about USD 1,100 million in its net purchases, mainly explained by the reduction in payments for imports of goods.
“Individuals” bought USD 791 million net, mainly for travel expenses and other consumption made with cards with non-resident suppliers (with a net result of USD 564 million) and for hoarding (with a net of USD 198 million for ticket purchases).
The “Institutional investors and others” sector, both resident and non-resident, made net purchases in the month for USD 10 million.
The foreign exchange current account registered a deficit of USD 313 million in October, explained by the deficits of the Services, Primary Income and Secondary Income accounts of USD 753 million, USD 373 million and USD 42 million, respectively, partially offset by the surplus of the Goods account of USD 854 million.
The financial account of the “Non-Financial Private Sector” had a deficit of USD 835 million in October. This result was explained by the cancellations of foreign currency balances with local entities for the use of cards with non-resident suppliers for USD 356 million (which do not entail a net demand for foreign currency in the financial account), by the records of exchange operations for net transfers abroad for USD 328 million (largely explained by the recording of the counterpart of income under concept of travel and tickets without obligation to settle in the foreign exchange market, for more information see Section III.1.2.), for the net outflows of local financial loans for USD 126 million, for the formation of foreign assets for USD 112 million, for the net outflows of other foreign financial debts and debt securities for USD 56 million, partially offset by foreign direct investment income of USD 91 million and net income from loans from international organizations of USD 52 million.
The operations of the foreign exchange financial account of the “Financial Sector” resulted in a deficit of USD 19 million. This result was mainly explained by net outflows from financial loans
of USD 49 million, net purchase of securities of USD 31 million and net payments of loans to international organizations of USD 15 million, movements partially offset by the decrease in the liquid foreign assets of the entities that make up the General Exchange Position (PGC) of USD 75 million.
The operations of the foreign exchange financial account of the General Government and the BCRA resulted in a deficit of USD 3,177 million (see Chart III.3.3.1), mainly explained by capital payments to the International Monetary Fund of USD 1,793 million (SDR 1,367 million) and by net cancellations of financial debt of USD 1,244 million.
In October, the BCRA’s international reserves decreased by USD 4,366 million, ending the month at a level of USD 22,559 million. This decrease was mainly explained by capital payments to the International Monetary Fund of about USD 1,793 million (SDR 1,367 million), net payments of principal and interest with international organizations (except the IMF) and other financial debt of the
National Treasury for USD 1,399 million, due to the decrease in the foreign currency holdings of the entities. by the BCRA’s net sales in the foreign exchange market and by the BCRA’s net payments settled through the Local Currency Payment System, partially offset by the increase in the price in US dollars of the assets that make up the reserves for USD 207 million