In recent developments, the Singapore dollar has seen a continuous increase in value compared to the Malaysian ringgit, reaching a new record high of S$1 to RM3.44 on Thursday, June 8, 2023.
Reliable data from Bloomberg reveals that the previous record-breaking exchange rate occurred on May 24, slightly over two weeks ago, when the Singapore dollar reached 3.4102 against the Malaysian ringgit.
Over the past year, the Singapore dollar has appreciated by approximately 7.6 percent, rising from around 3.19.
Earlier predictions regarding the weakening of the ringgit are proving to be accurate. Bank Negara Malaysia (BNM), the central bank of Malaysia, had previously suggested that the weakening of the ringgit could be attributed to various factors such as the debt ceiling deadlock in the United States, as well as banking uncertainties in both the U.S. and Europe. Furthermore, the aggressive interest rate hikes implemented by the U.S. Federal Reserve have also contributed to the ringgit’s decline.
Experts who were consulted by CNA at that time explained that the stronger economic fundamentals of Singapore have resulted in the depreciation of the ringgit against the Singapore dollar. Notably, a report by credit rating agency Fitch, prior to the analysis on May 29, stated that Singapore holds a AAA rating while Malaysia has a BBB+ rating.
One significant factor negatively affecting the ringgit is the inconsistent economic recovery of China. Given that China is one of Malaysia’s key trading partners, the weaker-than-anticipated recovery in China’s economy has had adverse effects on Malaysia.
Reports indicate that Malaysia experienced a 1.8 percent decline in exports year on year during the first quarter of 2023, largely attributed to the decrease in exports to China. Furthermore, the ringgit’s value has been hindered by Malaysia’s relatively limited investment opportunities and forthcoming domestic structural reforms.
However, it should be noted that Malaysia’s economic fundamentals remain strong, as highlighted by at least one analyst.
Another point of distinction between the monetary policies of Singapore and Malaysia is that the Monetary Authority of Singapore (MAS) follows an exchange rate-based framework, whereas Malaysia’s policy revolves around interest rates.
Two weeks ago, analysts predicted that the ringgit may eventually weaken to 3.45 against the Singapore dollar in the near future. Presently, the current exchange rate levels suggest that this prediction may be materializing.