Malaysia's headline CPI came in at.......>

DOLLAR-MYR: Malaysia's headline CPI came in at 1.3% y/y in March, slightly below

consensus expectations. The figure marks a continuation of the ongoing

moderation in inflation. Malaysia's low inflation rate is a major supportive

factor for the MYR, which continues its outperformance relative to other Asian

currencies. The central bank does not appear to be concerned by low inflation,

having hiked interest rates to 3.25% back in January despite the moderation in

CPI.

- Malaysia's 2-year interest rate swaps are currently at 3.76% as investors

anticipate further tightening. The gap between 1-year swaps and CPI is now a

substantial 250bps, providing strong support for the currency, which remains

undervalued in real effective terms.

- The major risk for the MYR comes from the potential for the opposition PKR

party to mount a strong challenge against the incumbent BN party at the upcoming

general election on May 9, which could undermine policy continuity and create

uncertainty surrounding fiscal discipline. However, we continue to expect MYR

appreciation relative to the rest of the Asian FX space.