KUALA LUMPUR: The Singapore dollar reached an all-time high against the Malaysian ringgit today, intensifying the spotlight on a growing policy gap between the two nations.
The Singapore dollar surged to a new high of 3.5086 against the ringgit early on Tuesday (Oct 24) morning.
The exchange rate first breached the 3.5 mark at 10.21pm on Monday, according to Bloomberg data. The rate then fluctuated but was largely floating above 3.5 overnight until 9.05am on Tuesday.
"That is because the Monetary Authority of Singapore (MAS) has been more aggressive on policy versus the Bank Negara Malaysia, which is basically a function of Malaysia's bigger dependency on the Chinese economy," SPI Asset Management managing partner Stephen Innes told Business Times.
China's economic weakness hurts Malaysia more as Singapore is somewhat insulated given robust banking sectors.
Hence, there is a bit of a safe haven appeal for Singapore dollar amid the regional basket," he added.
Innes said Malaysian banks including CIMB Bank Bhd and RHB Bank Bhd are enticing investors and savers with a mouthwatering 4.0 per cent one-year deposit rate in Singapore dollar.
In contrast, the local banks are offering a modest 2.0 per cent to 2.75 per cent on one-year ringgit deposits. This banking allure has incentivised a mass exodus of funds from the ringgit to Singapore dollar, which is further weakening the ringgit, he said.
They include differences in economic growth, inflation and interest rate differentials between Malaysia and Singapore can significantly affect exchange rate movements.
UCSI University Malaysia assistant professor of finance Dr Liew Chee Yoong said the depreciation of the ringgit against the Singapore dollar could be attributed to differences in economic growth, inflation and interest rate differentials.
Liew said as an exporter of commodities like oil and crude palm oil (CPO), the current drop in these two commodities' prices globally can also affect Malaysia's export revenue and the strength of the ringgit against other currencies.
"Persistent currency depreciation could eventually affect the trade balance between the two countries, potentially leading to trade imbalances.
"Over the long term, the continuous depreciation of the ringgit against the Singapore dollar could also influence Singaporean corporate decisions on location for business operations, with Singaporean firms potentially investing more in Malaysia as the cost of doing business becomes cheaper," he stressed.
Juwai IQI global chief economist Shan Saeed expressed confidence that the ringgit movement should improve in the next 20-30 days as the US Federal Reserve is going to maintain the status quo in the future meetings.
"Presently, ringgit fair market value ranges between 4.35 to 4.47 versus the US dollar. Once the dollar depreciates, all emerging market currencies will appreciate in the market and hence dollar tail end risk will commence in the financial markets," he added.