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 second quarter of 2011.

Main aspects

The operations carried out by the entities authorized to operate in foreign exchange with their clients in the Single and Free Exchange Market (MULC) showed a surplus of US$ 1,726 million in the second quarter of 2011, completing five consecutive quarters of surplus. The positive balance of the MULC accumulated in the last four quarters totaled US$ 10,502 million.

The sources of funds in the foreign exchange market in the second quarter of the year were given, as usual, basically by the surplus from transfers for goods, and, to a lesser extent, by income from financial loans and direct investments by non-residents. Likewise, the net sales of foreign currency by public sector organizations were highlighted, as a result of the change in their portfolios between placements in foreign currency due to availability in local currency. On the expenditure side, the demand for foreign assets from residents of the non-financial private sector as part of the application of higher private savings, and payments for rents, were highlighted.

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 foreign currency for approximately US$ 2,400 million in the quarter, absorbing both the surplus of the MULC and the sales of holdings in foreign currency of the entities authorized to operate in foreign exchange. This net intervention in the foreign exchange market made it possible to cover the net payments in foreign currency of the public sector and the BCRA, and to increase the BCRA’s international reserves in the quarter.

The BCRA’s international reserves reached a stock of US$ 51,695 million at the end of June 2011, reflecting a year-on-year increase of 5% and continuing at historically high levels both in relation to external debt and domestic monetary aggregates (in the order of 40% of external debt and 80% of total M2 in pesos).

The operations of the current account of the exchange balance resulted in a surplus of US$ 3,920 million with historical records in export collections and import payments. The fall in the surplus of about US$ 750 million compared to the result of the same quarter of the previous year, was basically due to the lower trade balance for goods and services, partially offset by lower transfers in terms of profits and dividends.

Collections of exports of goods reached a maximum of US$ 22,847 million, which implied a year-on-year increase of 21%, highlighting both the record of collections of the export sector of oilseeds, oils and cereals for US$ 10,804 million, with a year-on-year increase of 21%, and the rest of the sectors that registered settlements for an amount of US$ 12,042 million. reaching a peak for the series with a 20% increase compared to the same quarter of the previous year, and with year-on-year increases in practically all relevant export sectors. For its part, payments for imports of goods also reached a quarterly record of US$ 15,987 million, registering a year-on-year increase of 40%.

During the second quarter of the year, the foreign exchange capital and financial account was in deficit by US$ 3,695 million, increasing about US$ 1,100 million compared to the negative result of the same quarter of 2010 (US$ 2,561 million).

The net demand for freely available foreign assets from the non-financial private sector totaled US$ 6,125 million, with increases compared to previous quarters, reflecting the usual behavior that is usually observed in pre-election periods, mainly in the demand for banknotes by retail savers in a context of growth in domestic savings and investment. Part of the net demand for foreign currency banknotes from the private sector is used to constitute local deposits in foreign currency, which increased by about US$ 900 million in the period, and to cover tourism and travel expenses for residents abroad.

Medium- and long-term revenues were re-registered, through financial loan disbursements and direct investments by non-residents, which reached the highest since the first quarter of 2008.