Ringgit respite seen brief after Singapore refrains from easing

KUALA LUMPUR (Bloomberg) - Singapore's decision to refrain from easing monetary policy will provide temporary relief for Malaysia's ringgit after an oil-price slump and resurgent US dollar drove the currency to a six-year low, according to Malayan Banking.

The ringgit and the Singapore dollar gained Tuesday after the Monetary Authority of Singapore stuck with its exchange-rate stance, after reducing the pace of appreciation at an unscheduled meeting on Jan. 28. The currencies tend to move in tandem because Singapore is Malaysia's biggest trading partner and includes the ringgit in the currency basket used to guide policy.

The pair were Southeast Asia's worst-performing currencies over the past six months on prospects the U.S. will raise interest rates this year. Malaysia's currency has fallen almost twice as fast as Singapore's dollar as a plunge in crude prices cut government revenue in Asia's only major oil-exporting nation and after Fitch Ratings warned of a sovereign downgrade.

"In the near term, the ringgit could take cues from the Singapore dollar," said Christopher Wong, a Singapore-based senior currency analyst at Maybank. "But against the underlying U.S. dollar uptrend and domestic headwinds for Malaysia, including the risk of a Fitch rating downgrade and falling reserves, our view for ringgit weakness remains unchanged."

The ringgit has slumped 12 per cent in the past six months and sank to 3.7350 per US dollar on March 20, the weakest level since 2009, data compiled by Bloomberg show. The cost of crude oil in New York slid 35 per cent during the period.

The ringgit rose as much as 0.5 per cent Tuesday as MAS' policy decision boosted the Singdollar by 0.8 per cent, Asia's biggest gain.

The ringgit was little changed Wednesday at 3.7025 while the Singdollar pulled back to around 1.3622 from 1.3605 at its close on Tuesday.

Saktiandi Supaat, head of foreign-exchange research at Malayan Banking in Singapore, said he expects the exchange rate to be in the 3.68 to 3.70 range this week. The lender, Malaysia's largest, predicts the ringgit will weaken to 3.75 by the end of June.

Singapore uses the local dollar rather than interest rates to guide monetary policy and allows the exchange rate to trade against an undisclosed basket of currencies. When the Monetary Authority of Singapore unexpectedly loosened policy on Jan. 28, the ringgit dropped 0.6 per cent and the Singdollar fell 1.1 per cent.