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How The Depreciation Of The Ringgit Will Affect Singapore


Our closest neighbor Malaysia has seen her currency, the Ringgit (RM), depreciate to a 17-year low of 2.72 against the Singapore Dollar (SGD). In the world we live in today, the foreign exchange (forex) market affects us in ways it didn’t used to.

Here are some ways that people living in Singapore will benefit from the depreciating Ringgit.

 

  1. Cheaper Travelling Cost When Having A Holiday In Malaysia

Some of us can probably remember the days where the exchange rate between both currencies was at 1 SGD to 2 RM, or even lower. Today, at an exchange rate of 2.72, you get an additional RM 720 for every 1000 SGD changed.

Singaporeans travelling to Malaysia in the next couple of months will enjoy a better deal on just about everything there – including your petrol pump price (no additional tax on petrol there), your food and beverage, your entertainment, and most importantly, your groceries.

We hope that the increase in travellers from Singapore will not be cited when the crime rate increases.

Ever wondered why are items such as Magnum ice cream are cheaper in countries like Malaysia? Read to find out.

 

  1. An increase in salary for Malaysians working in Singapore

Our Malaysian colleagues in Singapore are getting a pay raise this year, even if there isn’t any increment in nominal salary.

This situation isn’t just unique to Singapore. An interesting trend brought about by globalization is that individuals are remunerated not based on their home country currency, but by the currency of the country that they are working in, or the home country where the company is from. It is common to find Singaporeans working for US firms in Singapore who receive their pay in US dollars.

Depreciation in the RM will translate into greater purchasing power for these people, thus reinforcing the notion that it makes economic sense to stay in a ‘cheaper’ country while working in a country that pays more.

 

  1. Cheaper cost of doing business in Malaysia

If lay consumers like ourselves are able to exploit the purchase of cheaper supermarket goods in Malaysia, you can be sure that profit greedy businesses are taking full advantage of it as well.

Singapore is Malaysia 2nd biggest trading partner (China is first) with bilateral trade between the two countries amounting to about $91 billion US Dollar in 2012. Products that Malaysia is known for such as palm oil and rubber are now cheaper for not just Singapore, but also the rest of the world.

Whether the end products that are reliant on these raw materials become cheaper for the consumers is anyone guess, but at the very least, this represents cost saving for businesses.

It could, however, be a double edge sword for Singapore. The close proximity between both countries means that MNCs that are cost conscious may start seeing the merits of relocating their offices in Malaysia.

There will be trade offs. Aside from cost, businesses have to consider other factors such as political stability, availability of talents and the business environment.

Our point here is that as Malaysia becomes cheaper to do business due to the depreciating Ringgit, Singapore becomes more expensive in relation.

 

Will The Ringgit Continue Depreciating?

A look at the historical exchange rate between the SGD and the RM will show a gradual but clear depreciation of the RM in the long run. The various reasons for that are complex. However, at the risk of oversimplifying the explanation, this could be the result of differences in growth and performances between both countries. If Singapore continues to prosper while Malaysia remains stagnant, there is no reason not to think that the two currencies will continue to diverge apart.

 

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