Ringgit Malaysia has recently hit a record low against the Singapore Dollar, exceeding 3.50 Ringgit. Notably, since 2003, the Ringgit has depreciated by approximately 60% against the Singapore Dollar, experiencing psychological levels at various points, such as 2.50 Ringgit in 2012, 3 Ringgit in 2015, and 3.50 Ringgit in 2023. The concern now is not a matter of ‘what if’ but ‘when’ the Ringgit will reach 4 or 5 Ringgit, equivalent to one Singapore Dollar.

The rapid devaluation is attributed to two factors: Singapore’s controllable actions and global market conditions. Singapore, being a significant trading partner with Malaysia, strategically manages its exchange rate to ensure the constant appreciation of its currency. Unlike Malaysia, where we refer to the Overnight Policy Rate (OPR) for monitoring economic policies, Singapore controls its exchange rate, utilizing the Singapore Overnight Rate Average (SORA) as an indicator.

Singapore’s approach is to control the exchange rate rather than interest rates, as a sharp drop in its currency due to its highly open economy could lead to a surge in inflation. This control ensures stability and allows Singapore to align its interest rates closely with those of the United States.

While this strategy benefits Singapore, it poses challenges for Malaysia, especially in states like Johor, as higher interest rates in the US attract more workers to Singapore. Maintaining competitiveness in the job market and dealing with potential labor shortages become key concerns. On the positive side, the increased movement of Singaporeans to Johor may boost local businesses, as they visit and shop in the region.

In conclusion, the Ringgit’s depreciation against the Singapore Dollar is influenced by both controllable actions by Singapore and global market dynamics. This situation necessitates careful consideration and strategic planning to address its potential impacts on Malaysia’s economy, particularly in terms of labor market dynamics and cross-border economic activities.