Singapore Dollar Gains as Malaysian Ringgit Hits Unprecedented Lows

25 Oct, 2023

Singapore Dollar Gains as Malaysian Ringgit Hits Unprecedented Lows

The Singapore dollar has reached an unprecedented high against the Malaysian ringgit, shedding light on the growing policy disparity between the two nations.

The Singapore dollar attained a new peak of 3.5086 against the ringgit during the early hours of Tuesday, October 24.

According to Bloomberg data, the exchange rate first exceeded the 3.5 mark at 10.21pm on Monday and remained consistently above 3.5 until 9.05am on Tuesday.

The growing policy gap between the two nations is a significant factor contributing to this situation. The Monetary Authority of Singapore (MAS) has adopted a more assertive policy stance compared to the Bank Negara Malaysia. This divergence in approach is partly due to Malaysia's greater reliance on the Chinese economy. The weakened state of China's economy has a more substantial impact on Malaysia, while Singapore remains somewhat insulated due to its robust banking sector.

As a result, the Singapore dollar is becoming more attractive as a safe haven within the regional currency basket. Malaysian banks, including CIMB Bank Bhd and RHB Bank Bhd, are offering enticing one-year deposit rates of 4.0 percent in Singapore dollars. In contrast, local banks are providing more modest rates of 2.0 percent to 2.75 percent for one-year ringgit deposits. This disparity is prompting a significant flow of funds from the ringgit to the Singapore dollar, further eroding the ringgit's strength.Several factors, such as differences in economic growth, inflation rates, and interest rate differentials, can significantly impact exchange rate fluctuations between Malaysia and Singapore.

Dr. Liew also pointed out that prolonged currency depreciation could potentially affect the trade balance between the two countries, possibly leading to trade imbalances.

Juwai IQI global chief economist Shan Saeed expressed confidence that the ringgit's situation would improve in the next 20-30 days, especially as the US Federal Reserve is expected to maintain its current stance in future meetings. He noted that the ringgit's fair market value currently ranges between 4.35 to 4.47 against the US dollar. Once the US dollar depreciates, emerging market currencies, including the ringgit, are likely to appreciate, mitigating dollar-related risks in the financial markets.