Dollar lost its savings instrument edge


The policy to hold the hike in foreign exchange (FX) rates, therefore curbing inflation, has frustrated those who relied on the dollar as a saving instrument. The dollar completely lost its savings instrument feature in the last six months.

USD/TRY, which hit 17.99 in August 2022, averaged 18.82 in February 2023.

USD/TRY rose by 4.6% from September 2022 to February 2023. Consumer prices surged by 22.2%, and domestic producer prices climbed by 20.1% in this period.

Those, who chose to evaluate their savings as dollars, were defeated by inflation in the same period. The real effective exchange rate shows that the lira gained value in six months.

There are two types of returns of the dollar: The interest rate offered for FX accounts, and the interest rate given for the FX, which is converted into FX-protected TRY deposit accounts (KKM).

Banks don’t offer a high-interest rate for FX accounts. The interest rate for FX, which is converted into KKM, is relatively higher.

Savings, which have been converted into KKM instead of being held in FX, will have a higher return by February. 

The FX rate hike was low in September 2022-February 2023, but the interest yield was taken as FX rates slightly rose. If the FX rate increased higher than the periodic interest rate, the FX rate difference to be paid would be higher than the interest rate.

Lifting the interest rate ceiling for KKM to be opened with the shift from FX deposit accounts in the last days of January has indirectly raised the FX return.

KKM, which was opened at the end of August, had a 3.3% return from the FX rate hike in the September-November period. The policy rate was 13%, and the interest rate ceiling for KKM hovered around 16%. A 4% return was created when KKM was opened at the interest rate ceiling in this period. Account owners had to content themselves with interest rate return after FX rates rose by 3.3% and the interest rate was 4%. 

Let’s assume that the same account was opened at the beginning of December when the interest rate ceiling declined further due to the policy rate of 9%. The interest rate ceiling stood at 12%. That’s why the 3-month rate hovered at 3% for December 2022-February 2023. FX rates rose just by 1.25% in the same period. That’s why the KKM owners had to content themselves with an interest rate of 3%, and the FX rate difference wasn’t paid again.

Those, who preferred KKM, had a return of slightly above 7%, although they had losses as inflation was higher in this period. But the real loss of those, who preferred to hold their FX at banks with no interest rate or chose the mattress saving, were higher.

Now there is a new opportunity. There is no interest rate ceiling for KKM to be opened with the shift from FX deposit accounts. The maximum interest rate for KKM opened in the lira is 11.5%. But there is no such limit for KKM opened with the conversion from FX deposit accounts. 

The interest rate for KKM opened with the shift from FX deposit accounts hovers around 20-25% at banks. That’s why KKM with a high-interest rate can be the best option for those who don’t want to touch their FX savings.

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