Ringgit getting smaller against greenback, no more place to hide water face against Sing dollar

THE ringgit does not seem to be on the recovery path in 2024 after having emerged among the worst-performing currencies in the region last year – ahead of only the Laotian kip which fell 16.2% against the greenback (the ringgit declined 8.14%).

At the time of writing, the local currency is a mere 2% away from reaching 4.8850/US$, a level last seen in 1998 when the Asian financial crisis ravaged the region’s currencies.

Or by having dropped 4.1% year-to-date (YTD) to 4.7835/US$, the ringgit is just 22 sen away from the RM5 mark which seems reachable if the decline of the local currency continues unabated.

As a saving grace, the ringgit is not the only currency experiencing a plunge given a similar pattern is also observed for other currency pairs, notably US$/Japanese yen: (+6.25%); US$/Chinese yuan (+1.67%) and US$/Thai baht (+4.58%).

While the decline against the greenback is tolerable given the US interest rates are at a 23-year high while the OPR (overnight policy rate) fixed by Bank negara Malaysia (BNM) is back to pre-pandemic levels, Malaysians may be forced to swallow some pride given that the ringgit has continued to get smaller against the currency of its arch-rival southern neighbour.

Against the Singapore dollar, it is down about 2.2% in 2024 after falling having depreciated 6% in 2023.

Like it or not, the slump against the Sing dollar evokes deeply rooted emotional sentiment among the older generation Malaysians which can be traced back to Aug 9, 1965 when Singapore separated from Malaysia to become an independent and sovereign state.

The separation was the result of deep political and economic differences between the ruling political parties back then which created communal tensions that resulted in racial riots in July and September 1964.

Nobody expects Singapore which is unblessed with natural resources to say the least, to emulate Japan to rise from the ashes of the atomic bombings of Hiroshima and Nagasaki during World War II by becoming developed economies at par with their US and European counterparts.

While the Singaporean and Malaysian currencies were on par right up to around 1980, that changed over the next 40 years with both the ringgit and Sing dollar moving terribly out of line with the Sing dollar triumphing over three-and-a-half times in value.

This has broadly reflected the widening gap in economic development between Malaysia and Singapore with the latter far outpacing its northern neighbour Malaysia in all areas including educational levels, infrastructure, GDP (gross domestic product) per capita and quality of life, among others.

As the Sing dollar tracks the greenback closely, Malaysians may have to brace for more ‘water face’ to be lost amid hardship to stem/contain outflows amid speculation that the US Federal Reserve is unlikely to reduce its interest rates so soon.

“Contrary to popular belief, BNM (Bank Negara Malaysia) cannot control the long-term trend of the ringgit. Its mandate is to maintain financial stability, and it can only reduce the day-to-day volatility of the local note,” tweeted The Futurizts which prides itself for helping Malaysians to achieve financial literary.

“With the US likely to maintain interest rates, pressure on the ringgit is expected to continue. BNM is unlikely to adjust the OPR (overnight policy rate) – lowering it would only weaken the ringgit further, while hiking it is unnecessary. So, buckle up. 🥲” – Feb 19, 2024

Main pic credit: The Online Citizen

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