This Week’s Top Headlines

i) Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) at 3.0% during its meeting on Thursday (July 6). The central bank stated that the OPR level is slightly accommodative to the economy. RHB Investment warned that the longer BNM delays on raising the OPR, the more likely the ringgit will continue to decline.

ii) How “richer” is Singapore compared to Malaysia? Based on GDP per capita, Singaporeans are 7 times wealthier than Malaysians on average. The tiny nation’s starting pay and wage growth also far exceeds Malaysia, but being a first world country does come with its own set of disadvantages.

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Bank Negara Malaysia maintains OPR at 3.0%

In its monetary policy statement released on Thursday (July 6), the central bank stated that the global economy continues to expand, driven by resilient domestic demand supported by strong labor market conditions.

However, global growth remains subject to downside risks as core inflation and high interest rates persist. Though headline inflation has moderated globally, core inflation has stayed above historical averages, which is likely to push central banks to keep rates higher for longer, thereby stifling growth.

As for Malaysia, headline and core inflation have moderated in the past few months but remain elevated. BNM expects these figures to cool further to its forecasts by the end of the year.

At the current OPR level, the central bank stated that the monetary policy stance is slightly accommodative and remains supportive of the economy. This is a signal that there’s a possibility for BNM to go with a final 25 basis point hike during the second half of 2023.

Ringgit continues to decline.

Following BNM’s decision to hold the OPR at 3.0%, the local note retreated over 0.84% to RM4.664 on Friday’s close. It started the week slightly higher at RM4.640.

BNM recently announced that it would intervene in the currency market to stabilize the ringgit’s decline, as citizens and politicians vent their fury on its rapid depreciation compared to other major currencies.

RHB Investment: BNM’s intervention unlikely to have a long-term impact on the ringgit.

In a note released on Monday, RHB Investment warned that Bank Negara Malaysia’s reserves could fall to US$109 billion in 3 months due to the central bank’s intervention.

International reserves are assets denominated in foreign currencies held by a nation’s central bank. They act as an emergency fund should the country go through an economic shock.

As of 31 May 2023, BNM’s international reserves stood at $112.7 billion.

RHB Investment also said that BNM’s intervention is unlikely to have a long-term impact on the ringgit.

It added that the longer BNM delays raising the OPR, the more likely the ringgit will continue to decline, as the US Fed’s interest rate is projected to peak at 5.5%-5.75%.

BNM's primary objective has never been to strengthen the ringgit, contrary to popular belief.

As previously discussed with financial experts Hann Liew and Sani Hamid, long-term currency strength will rely heavily on effective government fiscal policies and robust economic development.

The adjustments made to the OPR were always focused on ensuring price stability and managing inflation, not the ringgit.

Given that Malaysia's inflation has steadily moderated to 2.8% in May, there appears to be no pressing reason for BNM to aggressively hike rates, as it would only place an additional burden on citizens.

Singaporeans are 7x richer than Malaysians on average! 😲

After returning from a brief vacation in Singapore, I decided to look up a few stats about the tiny nation. The first thing that I searched for is GDP per capita, which measures a country’s economic output per person and is calculated by dividing the GDP of a country by its population.

GDP per capita generally tells you how wealthy people are in that particular country and, true enough, Singaporeans are loaded. Like seriously loaded…

Their GDP per capita is 7 times of ours, plus their starting pay and wage growth is absurdly high.

Low-income earners in Singapore earn at least $1,750 per month.

While Singapore does not have a minimum wage, the lower-income earners (ie. people working in the food services industry) are already earning at least SG$1,750 per month.

Malaysia’s minimum wage, on the other hand, currently stands at a measly RM1,500 per month.

According to the Department of Statistics Malaysia (DOSM), Malaysia’s median salary stood at RM2,250 per month in 2021.

In other words, half of the population earned less than RM2,250, while the other half earned more than RM2,250.

From 2020 to 2021, the median salary rose 9.1% from RM2,062 to RM2,250, while mean salary increased 3.5% from RM2,933 to RM3,037.

This growth may seem good on paper, but we must take into account the -15.6% median salary decline from 2019 to 2020 due to the Covid pandemic.

Singapore’s median salary is SG$5,070 per month.

From 2021 to 2022, the average monthly income rose from $4,680 to $5,070, representing an 8.3% increase.

Their median salary is almost twice as high compared to Malaysia's dollar for dollar, and from 2019 to 2020, it only fell by 0.635% due to the pandemic as compared to Malaysia’s -15.6% slump.

Singapore’s cost of living is absurdly high in certain aspects.

Living in a first world country is not always a bed of roses. Singapore currently holds a 2018 Guinness World Record for being the most expensive city in the world to own a car.

If you’re looking to rent a SHARED condo, expect to pay roughly $700-$2,000 per month.

Prefer a private flat? Then be prepared to fork out at least $2,000-$3,500 per month in rental expenses.

What about food and other necessities?

Singapore is known for its efficient and affordable public transport, usually ranging from $0.50 to $2.50 depending on the distance you travel.

With less than $6, you can have a decent meal at a hawker stall, or ~$10 at McDonalds.

As for Malaysia, getting a decent meal below RM10 in Kuala Lumpur is notoriously difficult these days.

Most noodle/rice stores have already raised their prices to the high single digits. Paired with a drink, your lunch could sometimes set you back by RM15.

Singapore is the clear winner when it comes to currency strength

Gone were the days when the sing dollar was on parity with the ringgit.

In the past decade, the Singapore dollar has rallied over 40% against our local note, from RM2.41 to its current all-time high of RM3.467.

Singapore does not have a monetary policy based on interest rates, unlike most countries. Instead, the Monetary Authority Singapore (MAS) controls inflation with direct intervention in the currency market by buying/selling sing dollars.

Since the tiny nation relies heavily on foreign trade, local inflation cools with a stronger Sing dollar.

Read more about Singapore’s remarkable monetary policy here.

But it’s not all doom and gloom for Malaysia.

Compared to our other neighbours such as the Philippines, Vietnam, and Indonesia, we are 3 times wealthier on average.

Malaysia is known for its generous government subsidies, which have kept oil prices extremely low compared to other nations.

A litre of RON95 costs RM2.05 locally, while the same litre costs $2.76 in Singapore.

The overall cost of living in Malaysia is much lower.

Despite the relatively high cost of food in Malaysia, the overall cost of living is significantly cheaper compared to Singapore.

Think of it as having US$5,000 to spend in Singapore and Malaysia.

In which country will you be able to live a more lavish lifestyle? The answer then becomes quite clear.

But this is, of course, accompanied by our comparatively lower wages as well.

It’s no doubt that Singapore is much wealthier compared to Malaysia

But that comes at a cost, as housing and car expenses are much higher.

While Malaysia has its own set of problems, our country also has its own beauty. Thanks to government subsidies, we’ve kept inflation moderately controlled compared to other countries.

Hey, our food here is generally better too. (Not kidding)

That’s all for this week’s newsletter!

*This issue was written at 11.30 AM on 9th July 2023 and completed at 4.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.