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 2016.

Main aspects

During the second quarter of 2016, the operations arranged by the entities authorized to operate in foreign exchange with their customers in the Single and Free Exchange Market (MULC) resulted in a surplus of US$ 1,744 million.

In this period, the Central Bank continued to take additional steps in the flexibility of the foreign exchange market.

In the quarter, the historical maximum of net income from investments by non-residents was observed, which quadrupled the flows of the same quarter of 2015 and was explained by direct investments of about US$ 800 million (in different sectors, highlighting those destined to communications, oil and the automotive industry) and portfolio investments of about US$ 700 million.

Likewise, in a context of greater access by the different sectors of the country to global financial markets, different placements in international markets by local governments and the private sector were observed, representing revenues of about US$ 4,800 million in the quarter, a level not previously observed in the MULC.

The volume traded in the MULC totaled US$ 110,823 million (equivalent to US$ 1,800 million on a daily average), a total that was among the historical maximums and represented an increase of 15% in year-on-year terms.

Net transfers for goods resulted in a surplus of US$ 2,481 million, showing a reduction of about US$ 950 million compared to the same quarter of the previous year, as a result of a greater decrease in export collections, compared to the fall observed in import payments.

On the side of the use of foreign currency, the net purchases of freely available foreign assets by the non-financial private sector for US$ 2,607 million stood out, showing a fall of about US$ 1,600 million compared to the previous quarter during which the monthly maximum limit of US$ 2 million was in force, which was raised during May to US$ 5 million. These purchases can be broken down into net purchases of banknotes for US$ 2,349 million and net transfers abroad for about US$ 258 million. Part of the purchases of banknotes remained in the financial system through the constitution of deposits in foreign currency by the private sector, which continued to grow in the period exceeding US$ 12,000 million of stock for the first time since mid-2012, or were destined to the subscription of Treasury Bills.

Net outflow for services items was around US$ 2,300 million in the quarter, showing a year-on-year increase of about US$ 600 million, mainly due to the increase in royalties, patents, trademarks and copyrights after regulatory relaxations. Net purchases for tourism, travel and tickets were around US$ 2,000 million, showing a year-on-year increase of US$ 200 million. On the other hand, net remittances abroad for income totaled about US$ 1,600 million in the quarter, highlighting the transfers of profits and dividends for US$ 1,074 million, a quarterly level not observed since 2011.

Taking advantage of the surplus in operations with customers, and with the aim of strengthening the assets of its balance sheet, the Central Bank made net purchases in the foreign exchange market for US$ 2,124 million in the quarter. This amount, together with payments for foreign trade operations channeled by the Local Currency Payment System (SML) in force with Brazil and by ALADI for US$ 327 million, meant a total of US$ 1,796 million. It should be noted that during the quarter, net purchases of foreign currency from the National Treasury were recorded for about US$ 4,300 million, which did not have a net equity effect on the BCRA’s balance sheet, but only on the composition of its assets and liabilities.

On the other hand, the placements of debt by the National Government for an effective value of about US$ 18,400 million stood out within the quarter, highlighting the placement for US$ 16,400 million within the framework of the agreements with the holders of debt in litigation that implied payments for all concepts for about US$ 9,300 million, and the placements of National Treasury Bills subscribed in foreign currency for about US$ 2,000 million. in addition to those denominated in foreign currency and subscribed in local currency for about US$ 750 million.

Likewise, some US$ 2,700 million affected by precautionary measures in New York were released that remained deposited in accounts of the trustee Nación Fideicomisos and the Bank of New York in the Central Bank, to be applied to the payment of interest services in accordance with the provisions of the Sovereign Payment Law No. 26,984. On the other hand, cancellations of capital services and interest on foreign currency debt were recorded for obligations with international organizations and holders of other public sector securities for about US$ 4,300 million in the quarter.

The operations of the current account of the foreign exchange balance resulted in a net outflow of funds of US$ 8,570 million. The increase in the deficit of about US$ 8,250 million compared to the result of the same quarter of the previous year was mainly due to the higher drawings in terms of income (for the interest paid to holders in litigation after the lifting of the precautionary measures and the higher drawings of profits and dividends), the lower net income from goods and the higher net expenditures from services.

Settlements through the foreign exchange market for the collection of exports of goods totaled US$ 16,178 million, which implied a 10% drop in year-on-year terms. The oilseeds, oils and cereals sector earned US$ 8,340 million, 5% below what was achieved in the same period of the previous year, associated with a fall in both domestically marketed volumes and foreign sales of agricultural products influenced by the impact of climatic factors on the coarse harvest. Revenues from export collections for the rest of the sectors totaled US$ 7,839 million, registering a contraction of 15% in year-on-year terms.

Payments for imports of goods from the exchange balance totaled US$ 13,714 million, implying a year-on-year decrease of 6%. The result observed occurred in the framework of the anticipation to April of the total release of the scheme for payment of debts for imports of goods and services prior to 16.12.15 established by Communication “A” 5850 that was originally scheduled for June

The capital and financial account of the foreign exchange balance registered a surplus of US$ 9,644 million, mainly as a result of net income from both the public sector and the BCRA for US$ 14,371 million and the non-financial private sector for US$ 1,023 million, partially offset by the deficit of the financial sector for US$ 118 million.

As a result, the BCRA’s gross international reserves reached a stock of US$ 30,507 million at the end of June 2016, implying an increase of US$ 936 million in the second quarter of the year.