This Week’s Top Headlines

i) The ringgit continues its downtrend against the US dollar as the Federal Reserve considers maintaining interest rates higher for longer. Closing at RM4.6850 on Friday, the local note has depreciated to a 10-month low.

ii) How much should a fresh graduate in Malaysia earn? According to the Belanjawanku Study, single people who own a car require RM2,600 per month to survive in the Klang Valley. This can be a useful benchmark for new graduates, though various regions may demand different income levels.

iii) What if I missed the deadline to file my taxes? Missing it is a significant matter, as LHDN could impose heavy penalties or even a jail term. But for those who haven't filed their taxes or have underdeclared their income, LHDN is offering an opportunity for individuals to voluntarily declare their taxes without incurring any fines or penalties.

Scroll down to read the details.

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RM4.6850 - Not a Pretty Sight for the Ringgit

Just when we thought the worst could be over for the ringgit, it has completely reversed its uptrend against the dollar since August.

Trading at RM4.6850, the local note has depreciated by 6.20% on a year-to-date basis, and is now only 31 cents away from the RM5.00 mark.

The pace of decline is worrying, and many are placing the blame on the government’s incoherent policies and Bank Negara Malaysia’s inaction, but there’s really more to it than that.

Why do currencies fluctuate anyway?

Exchange rates fluctuate due to supply and demand.

When demand for a currency is high while its supply remains constricted, it will strengthen.

A major factor influencing this demand is the interest rate set by central banks.

Higher interest rates tend to lead to a stronger currency

Imagine a scenario between two banks:

Bank A gives you 3.00% pa for your fixed deposits while Bank B gives you 5.50% pa.

Assuming that both banks are well capitalized, where would you place your money?

Most certainly Bank B, because it gives the higher return.

This is the same case for the ringgit’s weakness.

Since 2022, the US Fed has raised rates 11 times to 5.50%, while Bank Negara Malaysia (BNM) has only raised the OPR 5 times to 3.0%.

Compared to other central banks, the US is among the most aggressive in raising rates, resulting in the dollar’s strength.

During its most recent meeting on 20 Sept, the Federal Reserve kept interest rates steady, but it also indicated that it still expects one more hike before the end of the year and fewer cuts than previously indicated next year.

It is the speculation of additional rate hikes that brought a stronger dollar, and consequently a weaker ringgit.

In fact, the greenback’s strength is prevalent against other currencies, not just the local note.

Why is the US hiking rates?

Like Malaysia, the main reason for the Fed to aggressively raise rates is to tame inflation.

But unlike Malaysia, US inflation rose to a 4-decade high of 9.1% in July last year.

Though it has cooled steadily, the most recent figure spiked to 3.7%.

The increase proves that the Fed’s fight against rising prices is far from over, and that more rate hikes may be needed by the end of the year.

China’s economic slump: A worry for Malaysia’s economy and the ringgit

China’s influence on Malaysia’s economy should not be underestimated. According to a study conducted by the IMF, a 1% decline in China’s GDP will result in a half-point fall in Malaysia’s growth.

The Chinese government is currently struggling to contain a nationwide real estate crisis and has slashed rates to revive its economy.

Since 2021, the Hang Seng Properties Index has fallen sharply and has failed to recover to its pre-pandemic levels.

High oil prices propping up the US dollar

The recent resurgence in oil prices has also resulted in a stronger dollar. When examining historical patterns, there is a notable correlation between oil prices and the strength of the greenback.

This relationship can be attributed to the fact that the world's most traded commodity is priced in USD.

When oil prices experience an upswing, there is an increased demand for US dollars, which, in turn, contributes to the dollar's overall strength.

What’s Next for the Ringgit?

Bank Negara Malaysia has made it clear that its mandate is to tackle inflation, not to strengthen the ringgit.

Since Malaysia’s inflation has moderated to the central bank’s target goal of 2.0% recently, there is no reason for BNM to hike the OPR and unnecessarily burden citizens.

However, MIDF expects the local note to appreciate to RM4.24 by year-end, but this is assuming that the US Fed holds interest rates steady, and that China’s economy recovers, which may be a little far-fetched.

So buckle up, it may be a rough few months for the ringgit.

Fresh grads, your salary should be at least RM2,600 per month

This is based on the Belanjawanku Study, which estimates that a single person living in the Klang Valley requires RM2,600/mo to survive.

This can be a useful benchmark for new graduates, though various regions demand different income levels.

Bear in mind that this figure is AFTER EPF deductions. So, your gross salary should be RM2,921 or above.

For other regions and categories (ie. Married with two children), refer here:

I missed the deadline to file my taxes. What should I do?

According to LHDN, failure to pay your taxes on time will incur a 10-45% interest.

LHDN could also have you prosecuted and fined up to RM20,000 or jailed for not more than 6 months.

Even when the deadline has passed, you’ll still have to file them and pay the penalty.

Don’t ever think about skipping altogether. If you get audited, you’ll be in deep trouble.

If you have not submitted your tax returns or have underdeclared your income, LHDN allows you to submit them with no additional charges or penalties until 31 May 2024.

The voluntary disclosure will be accepted in good faith and no further review through an audit or investigation will be performed by LHDN.

In addition, payments can be made in instalments without any supporting documents required.

Check out the MyTax website to learn more.

That’s all for this week’s newsletter!

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. The opinions of this newsletter are solely that of the publisher.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

Our private announcement group will keep you updated with market movers and urgent matters. For only $1/month, you'll receive our weekly newsletter every Sunday night and daily notifications on important events, some with detailed thoughts from economist Mr. Sani Hamid and RinggitPlus founder Hann Liew.

✅ No commitments.

✅ Cancel anytime.

✅ Zero ads, zero shills.