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Why crowds are swarming Singapore's money changers

Jimin Lai | AFP | Getty Images

There were unusually long queues outside money changers in Singapore's central business district on Wednesday as residents rushed to snap up the beaten-down Malaysian ringgit.

The ringgit is near a 10-month low against the Singapore dollar and almost 5-year low against the U.S. dollar amid worries that lower crude prices will hit its economy. Malaysia is a net oil exporter and major palm oil producer.

Many of those lining up were Malaysians working in the city-state or Singaporeans that frequently travel to the neighboring nation.

Parama Amzsini, who commutes daily from the Johor Bahru – the capital of the southern Malaysia state of Johor that is a 45-minute drive from Singapore – did not want to risk missing out on the favorable exchange rate.

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"I normally don't change my money at this time of the month, but since the [Singapore dollar to Malaysian ringgit] rate is quite high I'm taking out what I have and converting it," the 25-year-old legal assistant told CNBC on Wednesday.

Chei Yen, another Malaysian working in Singapore, also finds a weaker ringgit helpful as she regularly sends money to her family back home. However, she professed that the slide in the currency has got her a little concerned about the health of Malaysia's economy.

Oil price threat

Depressed oil prices could undermine fiscal progress in Malaysia's economy, say economists.

"Malaysia has been running a chronic budget deficit and while they have taken steps to address it through subsidy cuts, that progress may be eroded by lower oil revenues," said Vishnu Varathan, senior economist at Mizuho Bank.

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Last week, State oil company Petronas, which accounts for more than half of Malaysia's government revenue, said payments to the government in the form of dividends, tax and royalties could be 37 percent lower next year if oil stays around $75 a barrel, Reuters reported.

"It's not going to be easy to regain fiscal traction, they will need to look for new revenue sources," said Varathan.

Lower oil prices will also hit Malaysia's economic growth, says Michael Wan, economist at Credit Suisse.

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"Ultimately, reduced revenue from lower oil prices means that the government will have to cut on-budget infrastructure spending in order to meet its lower budget deficit target of 3 percent for 2015, which puts more downside risk to 2015 growth," he said.

Strategists expect these concerns will continue to weigh on the Malaysian currency over the coming months, which has fallen more than 8 percent against the greenback since the beginning of September.

Credit Suisse recently lowered its U.S. dollar-Malaysian ringgit forecast to 3.49 in 3 months and 3.53 in 12 months, from 3.38 and 3.42 previously. The pair last traded around the 3.44 level.