Thursday 28 Mar 2024
By
main news image

Ringgit-vs-SG$

KUALA LUMPUR: The Singapore dollar yesterday hit a new all-time high against the ringgit, with the currency pair closing above the RM2.80 mark for the first time, amid a RM4.1 billion (US$1.1 billion) decline in Bank Negara Malaysia’s (BNM) international reserves to a two-and-a-half-month low ahead of a possible sovereign rating downgrade by Fitch Ratings by June 30.

The ringgit weakened to a new intra-day low of RM2.8057 against the Singapore dollar before closing at RM2.8005 yesterday evening. The ringgit hit RM2.8010 to the Singapore dollar intra-day last Thursday but yesterday was the first time it closed above the RM2.80 mark, according to Bloomberg data.

BNM yesterday also announced that its foreign currency reserves stood at RM390.2 billion (US$105.3 billion) as at June 15, 2015. This is down RM4.1 billion or US$1.1 billion from RM394.3 billion (US$106.4 billion) as at end-May 2015, lending credence to speculation that the central bank may have intervened to smoothen the ringgit’s decline amid so-called “US Fed taper tantrums”.

The decline, which took place when investors pulled billions out of emerging markets ahead of the US Federal Reserve (Fed) chief Janet Yellen’s June 17 speech, came after two consecutive months of gains. BNM’s reserve position of RM390.2 billion is still sufficient to finance 8.1 months of retained imports and is 1.1 times short-term external debt.

Singaporeans have reportedly swarmed money changers in the city state to take advantage of the currency strength ever since the currency pair broke the previous historical high threshold of RM2.70 to one Singapore dollar in mid-April this year.

At RM2.8005, the ringgit has weakened 4.1% in the past one month and is down 11.2% against the Singapore dollar over 10 months compared with its 52-week high of RM2.5193 on Aug 28 last year. Singapore uses the strength of its currency to guard against inflation.

Nonetheless, the ringgit closed firmer against the US dollar, up 0.29% to RM3.7325 yesterday after skidding 0.93% to RM3.7405 last Friday. Compared with its 52-week high of RM3.1415 on Aug 28, 2014, the ringgit has skidded 18.8% against the appreciating greenback the past 10 months.

It was only on June 8 that the ringgit weakened past its previous low of RM3.7365 in March 2009 — putting it worryingly near the RM3.80 that the ringgit was pegged to the US dollar during the Asian financial crisis in 1998 till July 2005.

Recovering from last Friday’s decline, the ringgit yesterday also closed firmer at RM5.9241 against the British pound, RM4.2327 against the euro, RM3.0264 to ¥100, RM2.9019 against the Australian dollar and RM0.6011 against the yuan.

Yet at these levels, the ringgit is still trading at levels last seen nearly six years ago in August 2009 against the pound and has since late April weakened 9.5% against the euro and 4.1% against the Australian dollar. The ringgit is also at its weakest in two and a half decades against the yuan.

Experts expect heightened global uncertainties and negative news flow to continue weighing on investor sentiment and the ringgit.

“The ringgit reaching the RM3.80 level looks possible right now … One of your ministers mentioned the ringgit could reach RM4 if Putrajaya misses its budget deficit target and Malaysia’s [sovereign rating] is downgraded because of 1MDB,” a Singapore-based currency analyst told The Edge weekly recently. “It is hard to say whether the weakness has been completely priced in,” he said.

Fitch remained tight-lipped on its looming end-June review of Malaysia, but the impact of the federal government’s mounting contingent liabilities and off-balance-sheet commitments, especially those under the Minister of Finance Inc’s (MoF) 100%-controlled entities, such as 1Malaysia Development Bhd (1MDB), were among concerns mentioned by Fitch when it retained a “negative” outlook on Malaysia in January.

In March, Fitch said a downgrade of Malaysia’s A- sovereign rating was “more than 50% likely” and that the country’s rating would “sit more naturally in the lower medium investment grade BBB range [BBB+, BBB, BBB-]”. Anything below BBB- is deemed non-investment grade or speculative.

When asked by The Edge weekly recently, Fitch’s head of Asia-Pacific sovereign rating Andrew Colquhoun declined to comment on whether a June 2 meeting with representatives from the MoF had reduced the chances of a downgrade by next Tuesday. Some observers reckoned there is a chance Fitch might continue to retain its “negative” outlook on Malaysia pending further proof of success in keeping its fiscal balance in check.

On June 16, Fitch said Malaysia’s high household debt of 88% to gross domestic product as at end-2014 “could have potential negative implications over the medium term if macroeconomic conditions were to worsen significantly”.

Compared with US$132.04 billion as at end-August 2014, the latest BNM reserves figure has showed a 20% decline in the past nine and a half months. BNM’s reserves position for end-June will be out on July 7.

 

This article first appeared in The Edge Financial Daily, on June 23, 2015.

      Print
      Text Size
      Share