KUALA LUMPUR: The ringgit recorded a new daily low against Singapore dollar as the latter currency strengthened amid the rise of the US dollar.
At 3pm, the ringgit stood at 3.5333 level against the Singapore dollar. The last recorded daily low was on Dec 13, at 3.5328.
The pair opened at 3.505 this morning before fluctuating up to 3.533.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the stronger Singapore dollar was a result of the republic's monetary policy, targeting foreign exchange rates as its policy instrument.
"The foreign exchange rate comprises various currencies. However, its contents are not disclosed. Nevertheless, the US dollar can be considered one of the main currencies in the SGD Nominal Effective Exchange Rate (SGDNEER).
"Therefore, when there is a change in the US monetary policy, it will directly impact the Singapore dollar and interest rates in the country.
"For example, the average overnight rate in Singapore (SORA) increased significantly from 2.68 per cent in November 2022 to 3.68 per cent now when the US Federal Reserve started raising interest rates in 2022," he said.
Afzanizam added that the Monetary Authority of Singapore will intervene in the foreign exchange market to ensure that the exchange rate between the Singapore dollar and the US dollar is maintained within the policy range.
In general, monetary policy requires managing exchange rates because the island nation relies on trade and depends on imports to meet natural resource shortages.
"By controlling the currency, they are better able to control inflation," he said.
However, Malaysia uses price controls and subsidies as tools to curb inflation.
"Suppose you want to change the method of determining interest rates. In that case, anything you do in the exchange rate may not be effectively transmitted to inflation control," Afzanizam added.
With the higher value of the Singapore dollar, it is not surprising that many Malaysians cross the Johor Strait to earn salaries in Singapore dollar because the higher exchange rate provides an opportunity to increase their net savings.
Meanwhile, Singaporeans will flood into Malaysia for tourism and shopping.