Since Jan 2 this year, the ringgit has weakened about 2 per cent against the Singapore dollar. Business Times spoke to Center for Market Education (CME) chief executive officer Dr Carmelo Ferlito to better understand why the ringgit keeps hitting new lows against the Singapore dollar.
1) When the US Federal Reserve started raising interest rates, the Singapore dollar followed suit closely.This led to a narrower differential between the US and Singapore interest rates compared with Malaysia.This makes Singapore a more attractive destination for capital compared with Malaysia.
2) The Singapore dollar at a regional level also plays a bigger role, as a reserve of value compared to other currencies: a sort of mini-dollar. Therefore, there is a higher demand for the Singapore dollar in times of uncertainty. The general climate of uncertainty favours currencies which are recognised as reserves of value. Worldwide is the US dollar, while regionally, the role is played by the Singapore dollar.
3) Malaysia's unclear policy direction is also a factor. Despite its lofty plans under the 12th Malaysian Plan it lags in implementing reforms such as business-friendly regulations or subsidy rationalisation, which would help economic growth.
