KUALA LUMPUR: The ringgit hit a new low of 3.5418 against Singapore dollar yesterday compared to the previous record of 3.5333 on Jan 23.
The Singapore dollar has appreciated by about 60 per cent against the ringgit in the last 20 years when S$1 was equivalent to RM2.24.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the Monetary Authority of Singapore (MAS) managed its monetary policy via adjustments in the exchange rate to help steer the country's economic growth and inflation rate.
"The exchange rate is a collective of currencies making up the SGD Nominal Effective Exchange Rate (SGDNEER). The composition of SGDNEER is unknown to the public but presumably, the US dollar is likely to be the main component.
"Therefore, MAS' monetary policy would typically mimic the movement of the US dollar."
Malaysian University of Science and Technology Professor of Economics, Geoffrey Williams said we will likely see these historically low levels for some time as there is no minimum value for any currency and Bank Negara Malaysia does not target exchange rates.
He added that the weakness of the ringgit reflects the damage done to businesses by lockdown policies during the Covid-19 period.
On the impact of the weaker ringgit against the Singapore dollar, Afzanizam said the weaker ringgit would boost Malaysia's exports but also mean that Malaysian's have to fork out more money to buy the same quantity of goods.
"So there are always two sides of the coin when it comes to currency movement," he added.
Afzanizam said persistent weakness in the ringgit was certainly a cause for concern, especially when the ringgit was deemed to be undervalued.
"It could reflect weak confidence on the part of the foreign investors. However, there are also external factors, such as the United States Federal Reserve's monetary policy decision.
"This is something that is beyond our control and we need to be mindful when interpreting the situation."
Afzanizam said a stable political landscape could boost the ringgit.
"It is essential for the consistent implementation of economic reforms. It also encourages foreign investment, which in turn will boost the demand for the ringgit."
Afzanizam added that effective reform planning and execution were critical for maximising resource utilisation and achieving productivity gains.
"Restructuring subsidies, exploring new taxation avenues, and overhauling the pension system can create fiscal room. The government must develop a cogent communication strategy to gain public support for these reforms," he said.
Furthermore, by bolstering local agri-food production, Malaysia could reduce its reliance on imports, which had contributed to significant trade deficits,
Afzanizam said addressing this imbalance was imperative to mitigate the outflow of the ringgit.
"Reducing the dependence on low-skilled foreign workers, who contribute to substantial outward remittances, is vital.
"The government should encourage businesses to enhance productivity through incentives focused on activities like research and development, rather than targeting specific sectors," he added.