Weakening ringgit no reason to sweat, say experts

PETALING JAYA: The ringgit’s historical low against the Singapore dollar is due to the latter tracking the movement of the US dollar, says Tradeview Capital Sdn Bhd chief executive officer Ng Zhu Hann.

The ringgit hit a historical low at RM3.55 against the Singapore dollar yesterday after closing at RM3.54, while also hitting RM4.76 against the greenback.

Ng told StarBiz that Singapore manages its monetary policies via the foreign exchange, which means when the US dollar strengthens, so does the Singapore dollar.

“Singapore does this to prevent implications of inflationary pressure, bearing in mind that a majority of its basic necessities are imported.

“So it needs to have a strong currency to negate this or it will result in imported inflation,” he said.

Ng said on top of that, Singapore had a huge reserve and surplus, unlike Malaysia which has been in deficit since the 1998 Asian Financial Crisis.

“Singapore’s balance sheet is strong, thus providing a solid foundation for its currency to remain stronger than many other currencies globally. However, should the Federal Reserve cut its rates, we can expect the Singapore dollar to come back down,” he said.

Ng explained this was a telling sign of how Singapore has successfully managed its economy to date.

“On a short-term basis, I would say there is no cause to be overly concerned but in the long run, this is indicative of how our economy isn’t as resilient as our neighbours, we are not moving at the same pace,” he said.

On what needs to be done, Ng said the government needs to put its mind to achieving fiscal discipline, which would put the country back on the right track.

“This also means not growing the economy via deficits but by increasing our reserves and surplus. Some debt is healthy but too much is bad,” he said.

Similarly, Malaysia University of Science and Technology economics professor Geoffrey Williams said the weaker ringgit was no reason to panic because it could be a good thing for exports.

“There are gains and losses to exchange rate movements. Recently, the weaker ringgit has helped exports even though global demand has been weak,” he said.

According to Williams, the Singapore dollar strengthened fairly quickly in the week because it is seen as a safe haven, as its monetary policy is aimed at stabilising the value of its currency, making it less volatile.

“In the current environment, investors are looking for safe havens so the Singapore dollar strengthens against the ringgit. In the long term, investors look for better returns and returns on Malaysian investments have been relatively low over the long term with equities on Bursa Malaysia falling, and returns on bonds remaining low for a long time,” he said.

When asked if the ringgit is undervalued, Williams said the actual value of any currency is what it is worth in the market, so the exchange rate is never undervalued or overvalued.

“The value of the ringgit is determined by the current exchange rate at which people want to buy and sell the ringgit.

“The idea that it is undervalued or overvalued is a notional concept related to a calculation of what it should or could be,” he explained.

Meanwhile, Rakuten Trade head of equity sales Vincent Lau said the ringgit weakening against the Singapore dollar was a temporary phenomenon and should be looked at in that manner.

“The economy remains sound and Bank Negara has maintained the overnight policy rate. The strengthening of the Singapore dollar seems to be more of a macro issue,” he said.

“I do believe the ringgit is undervalued, but that’s more of an external problem.

“This is because the interest rates have not been cut yet, we expect it to happen later in the year. It is also why the Singapore dollar strengthened against the ringgit,” he said.