A closer look at the different economic strategies that contributed to the ever-widening gap between the two currencies.
Malaysia and trade dependent Singapore took different routes towards managing their economies in 1973, and the currencies diverged too.
Malaysia’s decision to leave the agreement was influenced by international factors and domestic economic conditions, says economist Yeah Kim Leng of Sunway University. “However, Singapore, a highly open trading nation, uses the exchange rate as the main policy instrument,” said Yeah, who is a member of the finance ministry advisory committee.Afzanizam Rashid, chief economist of Bank Muamalat Malaysia Bhd, told FMT that the ringgit’s continued depreciation against the Singapore dollar is due to the different approaches of the two countries towards managing inflation.
“Let’s say you want to change the method to interest rate targeting, the chances are whatever you do in your exchange rate may not be effectively transmitted to your inflation control,” Afzanizam said.Given the higher value of the Singapore dollar, it is not surprising that a large number of Malaysians cross the Johor straits to earn a Singapore salary as the higher exchange rate is an opportunity to increase their net savings.
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