KUALA LUMPUR: The Singapore dollar hit a record high against the Malaysian ringgit last Wednesday (May 24), reaching 3.4102 according to Bloomberg data. This represents a 6.16% increase from about 3.20 last year and a 4.15% increase since the start of 2023. Malaysia’s central bank, Bank Negara Malaysia (BNM), released a statement on Friday attributing the ringgit’s recent weakness to external factors such as the US debt ceiling impasse and “episodes of stress” in the US and European banking sectors. The ringgit has lost 4.3% against the US dollar so far this year and hit its lowest level against the greenback since last November before rebounding 0.6% on Friday.
Experts suggest that the difference in interest rate policies between Malaysia and Singapore is a key factor in the Singapore dollar’s recent resilience against the Malaysian ringgit. Saktiandi Supaat, Maybank’s chief forex strategist, explained that Malaysia has an “explicit interest rate policy” set by BNM, which puts more pressure on the ringgit from the perspective of a widening yield differential. In contrast, Singapore’s Monetary Authority of Singapore (MAS) has an exchange rate-based monetary policy framework that is currently set to appreciate against an undisclosed basket of currencies. As there is no explicit interest rate policy in Singapore, interest rates are market dependent and highly correlated to US interest rates. Consequently,there is less pressure in terms of yield differentials on the Singapore dollar, making it more resilient than the Malaysian ringgit in the recent bout of strengthening of the US dollar.
Moreover, stronger fundamentals in the Singaporean economy have led to the ringgit weakening against the Singapore dollar. Investors’ confidence in Singapore’s economy is supported by its AAA credit rating, substantial foreign-exchange reserves, and solid current account surplus, according to economist Afiq Asyraf Syazwan Abdul Rahim from Kenanga Investment Bank. In contrast, the credit rating agency Fitch rates Singapore as AAA, while Malaysia is rated BBB+.
Analysts suggest that the ringgit’s recent slump against the Singapore dollar can be attributed to external and domestic factors related to the Malaysian economy. The ringgit had soared against the greenback in November 2022 after Mr Anwar Ibrahim was appointed Malaysia’s 10th prime minister. The currency had surged by 1.8% on the day of Mr Anwar’s appointment, the largest single-day gain since March 2016. However, the ringgit has since depreciated due to external factors such as the US Federal Reserve’s highly aggressive interest rate hikes, the US banking crisis, and geopolitical uncertainties.
Looking forward, analysts suggest that the value of the Singapore dollar to the Malaysian ringgit could spike to new highs in the near term, especially if the US dollar continues to appreciate. However, some experts stress that the Singapore dollar to Malaysian ringgit value would stabilizegiven that the US government has agreed to raise the debt ceiling, and Congress would vote on the deal on Wednesday. The ringgit could breach a new low of RM3.45 against the Singapore dollar if USD strength continues, according to Mr Saktiandi. However, he believes that the situation should gradually turn, and the medium-term outlook for the Malaysian ringgit remains positive. In the coming months, the US Federal Reserve could adopt a hawkish stance if inflation falls, and China’s economy could show a more discernible recovery by the fourth quarter, boosting appetite for regional emerging market assets.
Kenanga’s Afiq Asyraf also acknowledged that the ringgit could weaken against the Singapore dollar to 3.45, but he maintained that the fundamentals for the Malaysia ringgit remained solid and that any spike should be temporary. He added that the announcement on Sunday that the US has reached a deal to raise its debt ceiling will likely lead to a recovery for the Malaysia ringgit. The ringgit’s strength will be supported by Malaysia’s robust economic fundamentals and relatively stable political environment.
