What is arguably Southeast Asia’s most important exchange rate, Singapore dollar-Malaysian ringgit, leapt on Thursday to its highest level since November 2017, driven by FTSE Russell’s decision to reconsider Malaysia’s inclusion in an important bond index.
So far it’s been something of a tragic April for the Malaysian ringgit, which has lost value across the board, forcing SGD/MYR to its current rate of RM3.073. Owing to the fact that Singapore and Malaysia are each other’s second largest trading partner, SGD/MYR affects masses of regional trade.
The ringgit has been under significant pressure since March’s announcement by the Statistics Department of a second consecutive month of Malaysian deflation, and the latest strike against the currency comes this week in the form of Malaysia’s potential elimination from a globally important bond index over concerns relating to market accessibility.
FTSE Russell, provider of the FTSE World Government Bond Index (WGBI), has said it is considering downgrading Malaysia from a level 2 rating—the minimum required level for inclusion in WGBI—to a level 1.
Capital outflows following an elimination from the index—which one analyst said on Thursday is now “more likely than not”—could amount to US$8 billion (RM33.15 billion), Morgan Stanley has estimated.
Against the US dollar, the ringgit fell on Thursday to a 15-week low of RM4.145, and a day earlier it slipped to an 11-week low against the Australian dollar, which now buys RM2.981.
By contrast, the Singapore dollar has entered a period of unusual calm: at S$1.356 and S$0.97 respectively, USD/SGD and AUD/SGD have been trendless since mid-January.
The current economic situation makes it more likely that Malaysia’s central bank, Bank Negara, will cut interest rates in May, which could weaken the ringgit further. Though the Monetary Authority of Singapore expressed caution at its meeting last week, an unchanged policy remains most likely when it next meets in October.
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