The Malaysian ringgit has strengthened by 6 per cent against the Singapore dollar over the past three months, moving from 3.4762 to 3.2584 between June 28 and September 20. This marks its best quarterly performance in 50 years, according to Bloomberg. In August, the ringgit was already the top-performing currency in Asia. Currently, it is trading at 4.208 ringgit to US$1, its strongest showing in 2024. The last time the ringgit performed this well was in January 2023.
Background
The ringgit’s recent performance against the Singapore dollar is its best since February 2023. Several factors contribute to this strengthening, including recent economic policies and global financial trends. Understanding these elements provides insight into the ringgit’s impressive rally.
U.S. interest rate cuts
One significant factor is the recent interest rate cut by the U.S. Federal Reserve on September 19, which led to a decline in the U.S. dollar, as reported by Reuters on September 20. However, the ringgit had been strengthening against the U.S. dollar since January 2024, indicating that other factors are also at play.
Growing investor confidence
Analysts suggest that growing investor confidence in the Malaysian economy is bolstering the ringgit. The Malaysian government’s decision to cut diesel subsidies in May, projected to save up to RM4 billion (S$1.23 billion), may have reassured investors about the government’s commitment to reducing its deficit. Additionally, Malaysia’s Energy Transition Roadmap and New Industrial Master Plan 2030 have attracted investments into Malaysian companies. The continued stability of Prime Minister Anwar Ibrahim’s coalition government, now in its second year, has also likely allayed fears of political instability, further supporting the currency.
Effects of a strengthening ringgit
While the ringgit’s rally benefits Malaysian importers who trade in U.S. dollars or purchase components in U.S. dollars, it makes Malaysian exporters less attractive to buyers. This dual effect highlights the complex impact of currency fluctuations on different sectors of the economy.
Future implications
Looking ahead, the ringgit’s performance could influence various economic policies and investor strategies. If the currency continues to strengthen, it may prompt further adjustments in government policies to balance the interests of exporters and importers. Additionally, the ongoing stability of the Malaysian government and its economic initiatives will be crucial in maintaining investor confidence and sustaining the ringgit’s upward trajectory.
