Are currency-protected deposits still attractive for investment?

Ufuk KORCAN / THE ROUTE OF MONEY

Markets have been moving with their own agenda for a long time. While the stock market was renewing its historical peaks, the dollar/TL parity could not exceed 17.96 levels. In this process, the expectation that the Central Bank would suspend interest rate cuts and maintain the current policy interest levels for a certain period of time was effective. However, at the Monetary Policy Committee (MPC) meeting held last week, the Central Bank again surprised and cut 100 basis points. After this decision, while the dollar rapidly rose above TL 18, the short-term shock in the stock market was quickly overcome and the index exceeded 3,000 points.

All kinds of balances are increasing

After this decision of the Central Bank, it is useful to make a situation assessment for the savers who do not like risk. As you know, in the last days of last year, the shift from Turkish Lira to foreign currency accelerated and there were record increases in exchange rates every day. Currency protected deposit (KKM) product was introduced to the market in order to prevent the money going from TL to foreign currency and even to create a dissolution in foreign currency accounts. Both TL and foreign exchange investors showed great interest in this product.

Why not show it? When the increase in the exchange rate is above the interest income, the difference is deposited into the accounts, it has not happened yet, but you receive interest income in case of a possible decline in the exchange rate. In other words, your balance increases in every way at the end of maturity.

Couldn’t keep up with inflation

Let’s take a look at the 7-month inflation figures with the income they have earned since the beginning of the year. A person who invested his savings in KKM at the beginning of the year, actually achieved a return of 35 percent as much as the increase in exchange rates. TURKSTAT recently announced the inflation figures for July.

By the way, ignoring the 20 days we left behind in August, there was a 45.7 percent increase in the Consumer Price Index. In other words, those who evaluate their money in KKM have achieved a return about 10 points below inflation since the beginning of the year. In fact, the difference is much larger when people’s food-based inflation is taken into account. In other words, KKM investors could not protect themselves against inflation.

Protection against exchange rate increase

For those who do not want to invest in risky assets such as stocks, there is no other address other than KKM. All interest-based instruments offered less returns than KKM. So, what’s the situation next?

After the surprise rate cut of the Center, the expectations for new cuts have been strengthened. Therefore, the continuation of the interest rate cuts will support the upward movement in the exchange rates. In such an environment, KKM will be a ‘safe haven’ for its investors and will continue to see a shield against increases in exchange rates.

Will the dollar continue to rise?

Staying above 17.07 TL will mean that the parity is high. technically the most fundamental factor explaining the rise. Staying above this level may bring a movement towards 18.25 resistance in the first stage. In case the peak level is exceeded, there is a risk that the possible upward movements in the parity will continue. For this reason, in order to talk about a technical relief on the parity, it is necessary to go below TL 17.07 first. However, it should not be forgotten that the real relief can be taken with the breaking of the upward trend that started on January 3, 2022. The support point of this trend coincides with the levels of 16.29 TL for this week.

Requirement of 38% return by the end of the year

After the Central Bank’s decision to cut interest rates by 100 basis points, it is wondered whether there will be upward revisions in the year-end dollar rate forecasts. French bank Societe Genarale did not change its year-end dollar rate forecast of 22 TL after the decision. However, many analysts are of the opinion that the Turkish lira will remain under pressure in the coming period. The interest rate applied in KKM was also set +3 points above the policy rate. After the discount, the interest rate, which is 17 percent in KKM, can be reduced to 16 percent. Based on these figures, it seems that the exchange rates will again determine the return of KKM investors for the rest of the year. Therefore, according to the assumption that the dollar closed the year at 22 TL in the past 4.5 months, it can provide 21.5 percent return on KKM and 38 percent compared to 25 TL.

Breakeven point: 19.20 TL

Now let’s look at the interest yield of KKM. If the interest rate is reduced to 16 percent in KKM, the 3-month net return, which is around 4.3 percent, will approach 4 percent. If we make the calculation over 4.5 maturities, the breakeven point of the dollar rate and the interest yield corresponds to 19.20 TL. In other words, if there is an exchange rate above 19.20 TL at the end of the year, the difference will be credited to the accounts. An exchange rate below 19.20 TL will mean that the interest yield is higher.

Critical levels in Borsa Istanbul

The rise continues in Borsa Istanbul, where the interest of those who want to protect their savings against inflation has increased recently. The upward movement continues in the BIST 100 Index, which exceeded the level of 2,800 points, which is a very important trend resistance in technical terms. This trend line, which worked as a resistance point before, seems to work as an important support trend for the index from now on. For this week, the possible support point of this trend coincides with the level of 2,813 points. In other words, as long as it stays above this trend line in terms of the index, it can be said that it is up from the main trend for the moment, even if it is a fluctuating price trend. In possible retracements, falling below this trend support may reveal the risk of testing the horizontal support point at the level of 2,700 points for the index. Below this level, there is the support zone in the 2.400-2.420 point band.

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