Economist explains how the Ringgit is affected when oil prices fall

Oil prices are plummeting. What has the price of oil to do with, for example, the Malaysian ringgit?

CIMB economist Song Seng Wun explains the relationship between oil prices and currency.

WHY ARE OIL PRICES DROPPING?

We are scratching our heads over such a significant plunge. One could look at a dip in oil consumption, or a huge shift in the supply.

But, looking at the figures, it doesn't appear that there is a significant shift in the supply and demand picture.

That brings us to the conspiracy theory of some countries selling oil cheaper than what the market is basically offering, for unknown reasons.

Perhaps it's Saudi Arabia, the world's largest oil producer, which is keeping the oil supply constant.

Keeping the overall oil production constant, and at the same time selling it at a cheaper rate, forces the oil prices down. One of the speculations is the price war between the US, where there is a shale oil boom, and Saudi Arabia.

Saudi Arabia could have a vested interest in discouraging further investment in shale gas in US so as to remain the world's largest oil producer.

WHO WILL BE AFFECTED?

Countries rich in oil and who rely on oil exports, which is priced in US dollars, for revenue will be affected.

If the US dollar strengthens, the nominal price of the oil drops. This puts pressure on countries like Malaysia, Australia and Indonesia.

There are also specific domestic factors at play in Malaysia, which is oil-rich.

With state-owned oil company Petronas planning to reduce dividend and tax to the Malaysian government, the budget allocated to stimulate the economy may be narrowed.

HOW LONG WILL THE MALAYSIAN RINGGIT CONTINUE TO BE LOW?

It all depends on what is the perception of the lower oil prices and what the Malaysian government decides to do with the budget next year.

At this point, people are still whipping out their calculators to gauge the impact of low oil prices.

Cheaper across the Causeway

On Monday, the Malaysian ringgit (RM) sunk to a 10-month low against the Singapore dollar, amid growing worries that oil-exporter Malaysia would be one of the Asian countries hardest hit by the fall in global oil prices.

As of noon on Dec 2, the exchange rate was RM2.62 for every S$1. In August, the exchange rate was RM2.52 for every S$1.

Here are five things that will give you more bang for your buck across the Causeway this December holidays:

LEGOLAND

A combo adult ticket, which allows you entry to the theme park and the water park, costs RM175 while the child and senior option costs RM140.

What it would have cost in August:

Adult: S$69.44; Child: S$55.55

What it costs now:

Adult: S$66.79; Child: S$53.44

HELLO KITTY TOWN

An entry ticket to the Hello Kitty-themed park costs RM75 for both adults and children.

In August: S$29.76

Now: S$28.63

TONY ROMA'S

The rib restaurant opened an outlet at the Komtar JBCC, a stone's throw from the Woodlands Checkpoint.

They now have a promotion called the Tony's Fiesta Platter, which costs RM148.

In August: S$58.70

Now: S$56.49

LASER TAG

Laser Tag at Galactic Laser, Sunway Pyramid Mall, is an option if you have a few hours to kill. One mission costs RM23.

In August: S$9.12

Now: S$8.78

HAIRDRYER

If you've been toying with the idea of getting a travel-size hairdryer, now is the time to do it at Tesco.

A Philips SalonDry Travel HP4940 hairdryer costs RM68.90.

In August: S$27.34 Now: S$26.30

-Asiaone