Why the value of the Malaysian Ringgit has been rising against the Singapore Dollar lately

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  • The Malaysian Ringgit has strengthened against the Singapore Dollar in recent months, rising by more than 4.5% since mid-July 2024, marking a reversal of the long-term trend.
  • Malaysia's strong economic performance, with Q2 2024 GDP growth at 5.8% year-on-year, contrasts with Singapore's more modest growth of 2.9%, contributing to the Ringgit's appreciation.
  • Global factors, including expected U.S. Federal Reserve rate cuts and Malaysia's stable interest rates, are supporting the Ringgit's gains, though long-term trends still favor the Singapore Dollar.

Currency changes between the Singapore Dollar (SGD) and Malaysian Ringgit (MYR) are widely monitored since they might have an impact on cross-border expenditure and capital flows.

While there has been a lot of media emphasis to how the Singapore Dollar has strengthened significantly versus the Ringgit in previous years, the MYR has actually risen sharply against the Singapore Dollar in recent months.

The recent shift in the SGD-MYR exchange rate has caught the attention of economists and financial analysts across Southeast Asia. This unexpected development has prompted a reevaluation of economic forecasts and investment strategies in both countries. Experts suggest that this trend could have far-reaching implications for regional trade dynamics and cross-border investments, potentially reshaping the economic landscape of the ASEAN region in the coming months.

In February 2024, the Singapore Dollar reached a high of nearly MYR3.56. The chart below shows that the Malaysian Ringgit has risen by more than 4.5% from mid-July 2024, particularly in the past month, to an exchange rate of SGD1: MYR3.32.

Large variations in currency rates between nearby nations have the potential to affect trade and person flows (for example, tourism).

In 2023, overall commerce between Singapore and Malaysia was slightly under US$80 billion, and they are each other's second-largest trading partners. Beyond that, many Malaysians live in Johor Bahru (JB) and commute to Singapore for employment on a regular basis. An increasing number of Singaporeans are opting to rent in JB while maintaining their jobs in Singapore, particularly if they can work remotely a few days per week.

This evolving cross-border dynamic has sparked interest among urban planners and sociologists. The phenomenon of Singaporeans choosing to live in JB while working in Singapore has been dubbed the "JB-SG corridor effect" by some experts. This trend is not only influencing housing markets in both cities but also prompting discussions about potential infrastructure improvements, such as enhanced transportation links and streamlined border crossing procedures, to accommodate the growing number of cross-border commuters.

While Singapore's greater economic development in comparison to Malaysia has historically supported the Singapore Dollar's rise against the Malaysian Ringgit, the converse has recently occurred in 2024.

Malaysia's economy outperformed expectations in 2024. The Q2 2024 advanced forecasts for Malaysia's GDP growth were 5.8% year on year, the strongest quarter of growth since the Q4 2022.

This was aided by the fact that growth was observed across a wide range of the economy, from industry to consumption. The growth rate was also significantly higher than Malaysia's Q1 2024 GDP growth of 4.2% year on year.

As a result of the high growth, many Malaysian market analysts currently predict that GDP growth in 2024 would be over 5%.

Meanwhile, Singapore's advanced predicted GDP growth rate for Q2 2024 was 2.9% year on year, according to the Ministry of Trade & Industry (MTI). While this is still a strong rate, it represents a little slowdown from the 3% year-on-year GDP growth rate forecast for Q1 2024.

So, with a strong pace of acceleration for the Malaysian economy in 2024 (particularly in Q2 2024), combined with a static Singapore economy, the Malaysian Ringgit has begun to strengthen against the Singapore Dollar since mid-July, coinciding with the most recent economic figures released by both countries.

A deteriorating labor market in the United States, combined with reduced inflation, has convinced the markets that the Federal Reserve (Fed) will begin decreasing interest rates at its mid-September meeting. That would be the first interest rate drop in the world's largest economy in more than four years, and the expected rate cut has boosted the Ringgit even more.

Naturally, looser monetary policy in the United States tends to promote emerging market currencies more than developed market currencies. Malaysia is designated as a "Emerging Market," but Singapore's economy is significantly more developed.

The classification of Malaysia as an emerging market and Singapore as a developed economy has become a topic of debate among international financial institutions. Some economists argue that Malaysia's recent economic performance and structural reforms warrant a reassessment of its market status. This discussion has gained traction in light of Malaysia's robust GDP growth and the increasing sophistication of its financial markets. A potential reclassification could have significant implications for international investment flows and Malaysia's position in global economic indices.

However, focusing just on the Malaysian Ringgit's appreciation against the Singapore Dollar misses the point. Looking at the Singapore Dollar's overall strength, we can see that it has risen over 3% versus the US dollar since mid-July, and much more since April 2024.

Finally, Malaysia's central bank is holding its benchmark interest rate unchanged. This lends credence to the Malaysian Ringgit's recent gains. With an interest rate of 3%, Bank Negara Malaysia (BNM) and its monetary policy stance are more hawkish in comparison to other Southeast Asian countries and the US Federal Reserve, all of which are considering rate cuts shortly.

Meanwhile, the country's inflation rate is in a favorable range, with the BNM not anticipating inflation to exceed 3% in 2024. Given Malaysia's current strong economic growth, the central bank should be able to hold off on any rate decreases.

While the Malaysian Ringgit has strengthened significantly against the Singapore Dollar in the last one to two months, we should also take a step back and consider the bigger picture.

Over the last year, the Malaysian Ringgit has only strengthened by about 2.6% against the Singapore Dollar. When we look at the five-year performance, the Ringgit has really fallen approximately 8.5% against the Singapore Dollar.

This longer-term perspective highlights the complex nature of currency fluctuations and their underlying economic drivers. Currency strategists point out that while short-term movements can be influenced by various factors such as interest rate differentials and economic growth rates, long-term trends often reflect more fundamental aspects of an economy. These may include productivity growth, technological advancements, and structural reforms. As such, the recent appreciation of the Ringgit against the Singapore Dollar should be viewed within the context of these broader economic trends and ongoing developments in both countries.

For the Malaysian Ringgit to rise further versus the Singapore Dollar, Malaysia's economy must continually develop faster than Singapore's in the next quarters. If the US Fed drops interest rates more than expected, the Malaysian currency may benefit more than its Singapore counterpart.


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