Currency movements between the Singapore Dollar (SGD) and Malaysian Ringgit (MYR) are closely watched as they can impact spending and capital flows across borders.
While there has been a lot of media attention about how the Singapore Dollar has strengthened considerably against the Ringgit in recent years, the MYR has actually steeply appreciated against the Singapore Dollar in the past few months.
In February 2024, the Singapore Dollar hit a high of over MYR3.56. In the chart below, we can see that the Malaysian Ringgit has steeply appreciated over 4.5% since mid-July 2024, and especially so in the past month, to an exchange rate of SGD1 : MYR3.32.
Source: Wise
Large fluctuations in exchange rates between neighbouring countries have the potential to disrupt trade flows and human flows (i.e. tourism).
In 2023, total trade between Singapore and Malaysia totalled just under US$80 billion and they are both each other’s second-largest trading partner. Beyond that, many Malaysians live in Johor Bahru (JB), choosing to commute into Singapore for work daily. An increasing number of Singaporeans are also choosing to rent in JB, while keeping their jobs in Singapore, especially if they can work remotely a few times a week.
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Rebounding Economic Growth In Malaysia
While Singapore’s stronger economic growth, relative to Malaysia’s, has previously driven the appreciation of the Singapore Dollar against the Malaysian Ringgit, the reverse has recently been true in 2024.
In 2024, Malaysia’s economy has performed better than many economists expected. The Q2 2024 advanced estimates for Malaysia’s GDP growth came in at 5.8% year-on-year, marking the fastest quarter of growth for the Malaysian economy since the Q4 2022.
That was further boosted by the fact that the growth was seen across large swathes of the economy, from manufacturing to consumption. The growth rate was also a significant improvement over Malaysia’s Q1 2024 GDP growth of 4.2% year-on-year.
Malaysia’s GDP Growth (% year-on-year)
Sources: Bloomberg, Malaysia’s Department of Statistics
As a result of the strong growth, many market watchers in Malaysia now project that GDP growth for the whole of 2024 will be around 5%.
Meanwhile, the advanced estimated GDP growth rate in Singapore for Q2 2024 was 2.9% year-on-year, according to Singapore’s Ministry of Trade & Industry (MTI). While that’s still a healthy rate, it was a slight deceleration from the 3% year-on-year GDP growth rate for Q1 2024.
So, with a strong pace of acceleration for the Malaysian economy in 2024 (particularly for Q2 2024) – coupled with a static Singapore economy – the Malaysian Ringgit started to strengthen against the Singapore Dollar since mid-July – coinciding with the most recent economic figures released by both countries.
Read Also: Renting In Malaysia, Working In Singapore: How Feasible Is It For Singaporeans
Projected Federal Reserve Easing Aids Ringgit More
A weaker jobs market in the US, along with lower inflation, has convinced the markets that the US Federal Reserve (Fed) will start cutting interest rates at its mid-September meeting. That would be the first interest rate cut in the world’s largest economy in over four years – and the projected rate cut has helped the Ringgit more.
Naturally, looser monetary policy in the US generally gives a bigger boost to the currencies of emerging markets relative to more developed market currencies. Malaysia is classified as an “Emerging Market” while Singapore’s economy is much more developed.
However, fixating on the appreciation of the Malaysian Ringgit over the Singapore Dollar is not even half of the story. Looking more broadly at the strength of the Singapore Dollar, we can also see that it has appreciated against the US dollar by nearly 3% since mid-July, and even more since April 2024.
Source: Wise
That suggests that the Singapore Dollar is still very healthy. It is just that the Malaysian Ringgit is just getting a bigger boost from the expected rate cuts from the US Fed.
Steady Monetary Policy In Malaysia Is Positive In The Near-Term
Finally, Malaysia’s central bank is also keeping its benchmark interest rate stable. That is supporting the recent strength in the Malaysian Ringgit. With an interest rate that is being kept steady at 3%, Bank Negara Malaysia (BNM) and its monetary policy stance is relatively hawkish relative to other Southeast Asian countries and the US Fed – all of which are considering cutting rates soon.
Meanwhile, the country’s inflation rate is in a sweet spot with the BNM not expecting inflation to be above 3% in 2024. That should help the central bank hold fire on any rate cuts given how robust Malaysia’s economic growth is right now.
While the Malaysian Ringgit has strengthened by a fair amount versus the Singapore Dollar over the past one to two months, we should also zoom out and put this move into a broader context.
Over the past year the Malaysian Ringgit has only strengthened by around 2.6% versus the Singapore Dollar. If we take a look at the five-year performance, the Ringgit has actually declined nearly 8.5% versus the Singapore Dollar.
For the Malaysian Ringgit to strengthen further against the Singapore Dollar, Malaysia’s economy will have to consistently grow faster than Singapore’s over the next few quarters. Any bigger-than-expected rate cuts by the US Fed could also provide a bigger boost to the Malaysian currency when compared to its Singapore peer.
Read Also: Working In Singapore But Living In Malaysia. Which Country Do You Have To Pay Taxes In?
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