MS 09-01-14 Global Monetary Analyst

For important disclosures, refer to the Disclosure section.

M O R G A N S T A N L E Y R E S E A R C H

Global Economics Team:

Coordinators of this publication

Joachim Fels [email protected] +44 (0)20 7425 6138

Manoj Pradhan [email protected] +44 (0)20 7425 3805

Global

January 14, 2009

The Global Monetary Analyst

A New Global Liquidity Cycle

As GDP downgrades abound and investors’ gloom thickens, our metrics indicate that a new global liquidity cycle is in the making. While still in its infancy, this new liquidity cycle will likely help support asset markets, end the recession later this year and prevent lasting deflation. As always, it is difficult to predict which asset classes will benefit most from the build-up of excess liquidity. However, our strategists favour credit and EM equities in 2009. p 2

Central Bank Watch

US: Global Recession Aggravates US Downturn p 5 Euro Area: ECB to Cut a Further 50bp p 6 Japan: Revisiting the World According to ZIRP p 6 Sweden: Likely to Lower Repo Rate Further p 7 New Zealand: Time to Use the Ammunition p 7 Czech Republic: Rates Heading Under 1%? p 8 Hungary: NBH Still Walking a Fine Line p 8 Ukraine: Gas Not the Worst of its Worries p 9 South Africa: Tepid Growth in Global Recession p 9 India: Deeper Industrial Slowdown Ahead p 10 Korea: More Rate Cuts to Come p 10 Thailand: Aggressive Easing Continues p 11 Latin America: Easing Cycle Begins p 11 Brazil: Rate Cuts – How Fast, How Much? p 12 Mexico: Proceed with Caution p 12 Chile: Monetary Shock and Awe p 13 Peru: No Cut, but Door Open for Cutting p 14 Venezuela: No Inflation Relief in Sight p 14

Key Central Bank Risk Events Date Country Event 14-Jan Turkey Rate decision: Expect 100bp cut

14-Jan Chile Monetary Policy Report

15 Jan Euro Area Stark to participate in Topic of the Year event

15 Jan Euro Area Rate decision: Expect 50bp cut

16-Jan Mexico Rate decision: Expect 25bp cut

19 Jan Hungary Rate decision: Expect 50bp cut

20 Jan Canada Rate decision: Expect 25bp cut

21-Jan UK MPC minutes

21-Jan Malaysia Rate decision: Expect 25bp cut

21-Jan Brazil Rate decision: Expect 50bp cut

22-Jan Japan Rate decision: Expect on hold

What’s Changed? Forecast Changes Since Last Week US 2009 GDP -2.4% v. -1.9%, CPI -1.3% v. -0.3%, core PCE

inflation +1.1% v. +1.6% Sweden Policy rates: 1.25, 2.5% end ’09, ’10; prev. 2, 2.75%

NZ Policy rates: 3, 4% end ’09, ’10; prev. 4, 4.5%

NZ GDP: Expect -0.4% in 2009; prev expected 0.6%, CPI: expect 2.3% in ’09; prev. 3.3%

Czech Rep. Policy rates: 1.25, 1.5% end 4Q09, 1Q10; prev.1.5, 1.75%

South AfricaGDP: Expect 0.8, 3.6% in ’09, ’10; prev. 2.3, 3.7%

India Policy rates: 4.5, 5.5% end ’09, ’10; prev. 5, 6.25%

Korea Policy rates: 1.25% end 1Q09; prev.2%

Chile Policy rates: 5.75, 5.75% end 1Q09, 2Q09; prev.7.5, 6%

Where Do We Differ Most from the Market? ECB to cut more aggressively (to 1%) this quarter than mkt expects (p 15)

Bank of Japan expected to make the final step to ZIRP this quarter (p 15)

Bank of England expecting fewer cuts than the market (p 15)

mailto:[email protected]



January 14, 200 The Global Monetary Analyst

A New Global Liquidity Cycle Joachim Fels (44 20) 7425 6138

• Despite renewed major growth downgrades, investors shouldn’t get too gloomy on markets in 2009.

• Our metrics suggest that a new global liquidity cycle is in the making as excess liquidity has started to expand for the first time in almost three years.

• The ups and downs in excess liquidity have been a key driver of past asset booms and busts. We expect it to be no different in the future.

• The nascent new liquidity cycle should help to support asset markets, end the recession and prevent lasting deflation.

In a nutshell. As GDP downgrades abound and investors’ gloom thickens, our metrics indicate that a new global liquidity cycle is in the making. While still in its infancy, this new liquidity cycle will likely help support asset markets, end the recession later this year and prevent lasting deflation. As always, it is difficult to predict which asset classes will benefit most from the build-up of excess liquidity. However, our strategists favour credit and EM equities in 2009.

Focus on global excess liquidity... Our favourite metric for tracking the liquidity cycle remains the evolution of excess liquidity, which we define as the ratio of money supply M1 to nominal GDP (a.k.a. the ‘Marshallian K’). M1 is a narrow monetary aggregate comprising currency in circulation and overnight bank deposits held by non-banks. It is used for transactions in the real economy – when buying goods and services – and in the financial sphere – buying stocks, bonds or other financial assets. Simply speaking, if money grows by more (less) than nominal GDP, excess liquidity expands (contracts), and more (less) money is available for transactions in the financial sphere. Exhibit 1 plots our measure of excess liquidity both for the G5 advanced economies and for the four BRICs as a proxy for the emerging world. With money highly mobile across borders, we prefer such ‘global’ measures of excess liquidity to national ones.

Exhibit 1

A New Global Liquidity Cycle

80

90

100

110

120

130

140

150

160

170

180

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007G-5: Narrow Money as a share of GDP BRICs

Mar 1995 = 100 Excess Liquidity (Narrow Money/Nominal GDP)

Source: National data sources, Morgan Stanley Research

…as a driver of asset prices. As we have argued repeatedly over the years, the ups and downs in excess liquidity have been key drivers of past asset price booms and busts. The bond market rally of the early 1990s was led by a build-up of excess liquidity and gave way to a bond bear market in 1994 as excess liquidity evaporated. A renewed build-up of excess liquidity was also behind the equity bull market in the second half of the 1990s. It culminated in the dot.com bubble, which burst early this decade as excess liquidity turned down. And the mother of all credit and real estate bubbles up until 2006 was fuelled by the surge in excess liquidity that started in 2002 and lasted until early 2006, just as the downturn in excess liquidity from 2006 onwards foreshadowed the bursting of these bubbles in 2007/08. It is interesting to note that while G5 excess liquidity contracted already in 2006, the surge in excess liquidity in the BRICs at that time probably prolonged the surge in asset prices (mainly equities and commodities) into 2007. Only when BRIC excess liquidity also evaporated during the 2007 monetary tightening campaign did asset markets tank collectively.

Liquidity cycle has turned up. Importantly, in the most recent available quarter, G5 excess liquidity has started to rise again, for the first time in almost three years. In our view, this marks the beginning of a new global liquidity cycle. Exhibit 2 illustrates this more clearly by showing the quarterly growth rate of excess liquidity (rather than the level as depicted in Exhibit 1).

2



Exhibit 2

Sharp Increase in G5 Excess Liquidity

-8

-6

-4

-2

0

2

4

6

8

10

12

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

G5 Narrow Money Growth Minus Nominal GDP Growth, QoQ and Trend (in %)

Source: National data sources, Morgan Stanley Research

Excess liquidity is surging because M1 growth has started to rise at a time when (nominal) GDP growth is decelerating sharply. As we see it, excess liquidity is likely to accumulate further in the next few months and quarters, for several reasons:

• With interest rates already close to zero in several countries and being cut further in others, the opportunity costs of holding cash and non-interest bearing deposits (M1) have declined.

• By flooding banks with excess reserves (‘quantitative easing’), central banks have provided banks with plenty of wherewithal to create new deposits by lending to non-banks or buying securities.

• By targeting mortgage rates and other private sector lending rates directly through purchasing asset-backed securities (the Fed now prefers to call this ‘credit easing’ rather than ‘quantitative easing’ as per Chairman Bernanke’s speech last night), the Fed is supporting credit demand, which in turn supports deposit growth.

• With real GDP shrinking across the industrialised world and consumer prices heading south, nominal GDP – the denominator in our definition of excess liquidity – will likely decline in the near term.

Thus, 2009 is likely to mark the beginning of a new liquidity cycle, driven by the unprecedented conventional and unconventional easing of monetary policy as well as a gradual healing of the impaired financial system.

Surging excess liquidity is likely to have three consequences:

• As in past episodes, excess liquidity will find its way into asset markets. To some extent, this has already started to happen, with government bond yields having been pushed to new lows across the yield curve, credit spreads coming in and equities having bounced off their lows from last autumn. Our excess liquidity metrics tell us nothing about which asset classes will benefit earlier and most. But our strategists favour credit over equities and government bonds, and EM equities over developed market equities.

• By pushing interest rates lower and asset prices higher, excess liquidity should help to end the recession later this year. Despite their recent renewed growth downgrades, our economists in the various regions continue to envisage a recovery (though a muted one) during 2H09.

• Rising excess liquidity should also help to prevent a sustained period of consumer price deflation through its impact on asset prices, the real economy and inflation expectations.

Bottom line: Despite the massive growth downgrades, investors shouldn’t get too gloomy on markets in 2009, now that excess liquidity – a powerful driver of asset markets in the past – has started to turn up. It’s time to get ready for the new global liquidity cycle.

3



Inflation Target Monitor & Next Rate Move Global Economics Team. Contact: [email protected]

Inflation target

Latest Month

12M MS FCast

Next RateDecision

CurrentRate

Market Expects (bp)

MS Expects (bp)

Risks to our call

United States 1.8-2.0% core PCE (u) 1.9% 1.1% 28 Jan 0.125 3 0 Fed effectively at ZIRP, focus now on quant. easingEuro Area < 2% HICP (u) 1.6% 2.2% 15 Jan 2.50 -83 -50 ECB might wait or do less Japan 0-2% CPI (u) 1.0% -0.5% 22 Jan 0.10 0 0 Rate cut in Jan MPM depending on market United Kingdom 2% CPI 4.1% 0.1% 05 Feb 1.50 -61 0 Subjective 45% chance of a rate cut Canada 1-3% on CPI 2.0% 1.7% 20 Jan 1.50 -69 -25 Risks to downside as economy slips into recession Switzerland <2% CPI (u) 0.7% 0.9% 12 Mar 0.50 - -25 Intermeeting cut before March 12 possible Sweden 2.0% CPI 0.9% 1.4% 11 Feb 2.00 -69 0 Risks tilting to further easing Norway 2.5% CPI 2.1% 2.5% 04 Feb 3.00 -68 -50 Downside: single 100bp cut possible Australia 2-3% over the cycle 5.0% 2.7% 03 Feb 4.25 -80 -50 Risk of a larger cut New Zealand 1-3% CPI 5.1% 3.3% 29 Jan 5.00 -88 -100 Balanced risks Russia none 13.3% 9.5% - 9.00 - 0 -Poland 2.5% (+/- 1%) CPI 3.8% 2.0% 28 Jan 5.00 -52 -50 Sticky CPI in 2009 Czech Republic 3.0% (+/-1%) CPI 3.6% 1.6% 05 Feb 2.25 -91 -50 More aggressive near-term easing Hungary 3.0% CPI 4.4% 2.7% 19 Jan 10.00 -53 -50 Only weaker HUF could make NBH pause Romania 3.5 (+/-1%) CPI 6.3% 4.3% 04 Feb 10.25 - -50 Possible FX weakness could delay easing Ukraine none 22.3% 19.0% - 12.00 - - - Turkey 7.5% CPI end ’09 10.1% 6.9% 14 Jan 15.00 - -100 CBT might cut by 50bp Israel 1-3% CPI 4.5% 1.1% 26 Jan 1.75 - -50 - UAE - - 8.6% 28 Jan 1.50 - 0 - South Africa 3-6% CPI 12.1% 5.0% 12 Feb 11.50 -84 -50 Aggressive policy easing in light of recession fears Nigeria - 14.8% 3.5% 05 Feb 9.75 - 0 Rising core inflation forces policy rethink China - 2.4% -0.8% - 5.31 - -27 Tilted slightly to the downsideIndia 5% WPI 5.9% 3.0% 27 Jan 5.50 - 0 - Hong Kong - 3.1% 2.0% - 0.50 - - Downside risks on growth Korea 2.5-3.5% CPI 4.1% 3.0% 10 Feb 2.50 - -50 Downside risks on growth Taiwan - 1.2% 0.0% 09 Mar 1.50 - -50 Downside risks on growth Singapore 1.5% (long-term CPI) (u) 5.5% 0.8% 01 Apr 0.88 - - Changes in the FFTR and SGD appreciation pace Indonesia 4.5% +/- 1.0% 11.1% 9.0% 04 Feb 8.75 - -25 Evenly balanced risks Malaysia - 5.7% 1.5% 21 Jan 3.25 - -25 Downside risks if growth worse than expectations Thailand 0.5-3.0% core CPI 0.4% 1.0% 25 Feb 2.00 - -50 Evenly balanced unless further d/side growth surpriseBrazil 4.5% +/- 2.0% IPCA 5.9% 6.0% 21 Jan 13.75 -50 -50 Larger cuts in light of growth recession?Mexico 3% +/-1% CPI 6.5% 4.0% 16 Jan 8.25 -25 -25 50bp rate cut cannot be ruled out Argentina 15.5-24.2% M2 growth 7.2% 10.5% NA 15.93 - - Inflation could be under-reported Chile 3% +/-1% CPI 7.1% 4.5% 12 Feb 7.25 - -75 -- Peru 2% +/-1% CPI 6.7% 4.9% 05 Feb 6.50 0 0 - Colombia 5% +/-0.5% CPI 7.7% 5.1% 30 Jan 9.50 -25 -50 - (u) = unofficial Notes: Inflation numbers in red indicate values above target; MS expectations in red (green) indicate our rate forecasts are above (below) market expectations; China: inflation numbers is an objective announced by the Government; Thailand: the target for Core CPI is 0-3.5%;

0%

25%

50%

75%

100%

Inflation Relative to Target Expected Policy Rates (end '09) Last Policy Move

Actual >Target

12M FCast> Target

HigherLowerHikeCut

Source: National Central Banks, Morgan Stanley Research Notes: (u) = unofficial target; Interest rate expectations are implied by overnight indexed swap (OIS) curves and may differ from those implied by other instruments; where adequate OIS data are not available, FRAs, foreign exchange swaps, and/or interbank cash rate futures are used; due to varying risk premia (such as liquidity, basis, credit, term, reserve management, calendar turns, etc.), these figures should be used as estimates only; where such instruments are not available, we have inserted our best guess of what markets expect based on consensus estimates.

4



Central Bank Watch

What’s New This Week? US: Global Recession Aggravates US Downturn.......... p 5 Euro Area: ECB to Cut a Further 50bp......................... p 6 Japan: Revisiting the World According to ZIRP ............ p 6 Sweden: Riksbank Likely to Lower Repo Rate Further p 7 New Zealand: Time to Use the Ammunition ................. p 7 Czech Republic: Rates Heading Under 1%? ............... p 8 Hungary: NBH Still Walking a Fine Line ....................... p 8 Ukraine: Gas Not the Worst of its Worries.................... p 9 South Africa: Tepid Growth in a Global Recession...... p 9 India: Deeper Industrial Slowdown Ahead .................. p 10 Korea: More Rate Cuts to Come................................. p 10 Thailand: Aggressive Easing Continues..................... p 11 Latin America: Easing Cycle Begins.......................... p 11 Brazil: Rate Cuts – How Fast, How Much?................. p 12 Mexico: Proceed with Caution .................................... p 12 Chile: Monetary Shock and Awe................................. p 13 Peru: No Cut, but Door Open for Cutting .................... p 13 Venezuela: No Inflation Relief in Sight........................ p 14

US: Global Recession Aggravates US Downturn Richard Berner (1 212) 761 3398

Global drag trumps credit healing and fiscal boost: We now see a 2.4% plunge in 2009 US real GDP and a 1.3% decline in headline consumer prices, from 1.9% and 0.3% last month. The downgrade partly reflects a sinking global economy. Credit healing and fiscal stimulus need time to work, and investors should favor credit over equities.

The credit crunch and lags will limit fiscal traction: Roughly half of an US$800 billion stimulus plan including tax cuts and infrastructure spending will be spent in FY09. But two factors likely will limit thrust. First, consumers are likely to save a significant fraction of any tax cuts to pay down debt. Second, infrastructure spending rates will ramp up slowly.

Deflation risks intensify: Inflation will sag further, even after stripping out commodities. The prospective US output gap likely will jump to more than -7%, slack overseas will put downward pressure on import prices, and the dollar has stopped declining. US monetary policy is positioned to fight those risks, but policy abroad is still playing catch-up.

Sequencing is important for the economy and investors: Monetary easing and liquidity facilities have improved funding markets. Fed support for specific financial markets has lowered mortgage and corporate rates and promoted a stretch for yield. We favor cash corporate bonds and overseas over US sovereign debt, and expect modest dollar appreciation. For details, see our US Economics report of January 12.

US: Record Output Gap Escalates Deflation Risks

-10

-8

-6

-4

-2

0

2

4

6

8

64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09

Output gap

Percent

Change in inflation

Note: Output gap is ratio of real GDP to its potential. Change in inflation is the four-quarter change in the inflation rate measured by the personal consumption expenditures chain price index. Source: Bureau of Economic Analysis, Congressional Budget Office, Morgan Stanley Research

5

https://secure.ms.com/eqr/rlink/webapp/Research?action=streamFile&docId=727047&docFileType=1&linksrc=rl-res-site&lastParam=/RBER011209.pdf



Central Bank Watch

Euro Area: ECB to Cut a Further 50bp Elga Bartsch (44 20) 7425 5434

On balance, we expect further easing of 150bp in 1Q09… What is less clear at this stage is whether further easing will take place as early as at the January meeting. Divergent views emerged from the Council, some calling for a pause and return to 25bp clips, others highlighting the scope for further easing. The ECB emphasises that it has already administered 175bp of easing in official rates in just two months. And it has taken a range of additional measures, ranging of generous liquidity provision, foreign exchange swaps and a wider range of collateral (see EuroTower Insights: ECB to Enter ZIRP? January 7, 2009).

…with 50bp coming this week: A large part of this monetary policy stimulus will not have been transmitted yet. Equally, the current juncture is not a time for ‘wait and see’. Activity indicators – notably business sentiment, manufacturing orders and industrial production – are in freefall; HICP inflation is tracking below most estimates courtesy of lower energy prices; and money and credit growth seem to be slowing more noticeably. Hence, there is a case for taking out further insurance and cutting interest rates by another 50bp on January 15, we think.

ZIRP not likely for refi rate, but maybe for EONIA: While we would not categorically rule out that the ECB could also be forced to resort to extreme measures, we don’t believe that ZIRP is the most likely scenario for the official refi rate. However, it is possible for the overnight rate, EONIA, depending on market conditions once the refi rate hits 1%, as we forecast, and the corridor has been widened to +/- 100bp, as the ECB has announced. EONIA, the Euro Overnight Index Average, is the weighted average of overnight euro interbank offer rates for interbank loans.

Euro Area: Refi Rate Cuts and Wider Corridor Allow EONIA to Gravitate towards Zero

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan-99 Feb-00 Apr-01 Jun-02 Aug-03 Oct-04 Nov-05 Jan-07 Mar-08 May-09Refi Rate Marginal Lending/Deposit Rate Overnight Rate 3M Libor

% Forecast

Source: ECB, Morgan Stanley Research estimates

Japan: Revisiting the World According to ZIRP Takehiro Sato (81 3) 5424 5367

Looking for the additional action despite super-low rate: BoJ Governor Masaaki Shirakawa gave an indication after lowering the unsecured call rate target to 0.10% on December 19 that there is no scope for further easing, citing the need to preserve the function of money markets. Yet whether there are additional rate cuts depends on the state of the economy and markets. We are forecasting that ZIRP will be officially reinstated as early as in the January-March quarter.

It is not the governor’s stance but the economic fundamentals that matter: Given the governor’s negative comments on restoring ZIRP, the market is currently not pricing in the possibility of additional rate cuts. However, the lesson of last year is that economic fundamentals override all, including the preferences of the governor. Our view that the BoJ will reluctantly resort to ZIRP despite its insistence that market functions must be preserved is rooted in the harsh economic and market conditions in January-March. Budget approval hold-ups could derail the approval process of a number of budget-related sunset bills at a time of economic woe, with manufacturing output facing successive quarters of double-digit sequential declines. The BoJ’s ambivalent stance on holding down increases in term interest rates could cause its monetary controls to backfire.

10-year JGB yield likely to drop below 1%: The global economy, and with it Japan, is facing a spiral of asset price and general price deflation. The best strategy under deflation is to lengthen bond duration to the maximum possible. We believe that 10-year yields of 2009 will fall below 1% towards July-September, but we would expect the trend in both bond and equity markets to turn on any sign of a pick-up in the economy – if manufacturing were to show a snap back in the latter half of F3/10, for example. Indeed, idleness is the devil’s workshop. We outlined the risks of global deflation and prolonged ZIRP in 2002 (see The World According to ZIRP, November 8, 2002). ZIRP indeed dragged on as we had feared, until 2007. Bond prices, meanwhile, plunged after yields had fallen to the 0.4% range in an overheated JGB market by mid-2003, about half a year on from the publication of the note.

6

https://secure.ms.com/fidweb/firLink/webapp/openFile.jsp?action=stream&filename=mtb36719.pdf

https://secure.ms.com/fidweb/firLink/webapp/openFile.jsp?action=stream&filename=mtb36719.pdf

https://secure.ms.com/eqr/rlink/webapp/Research?action=streamFile&docId=223087&docFileType=1&linksrc=rl-res-site&lastParam=/j22623f.pdf



Central Bank Watch

Sweden: Riksbank Likely to Lower Repo Rate Further Elga Bartsch (44 20) 7425 5434

Riksbank to cut at next meeting: In light of the rather dreadful activity data and a marked fall in inflation, we expect the Riksbank to resume its easing campaign at the next meeting on February 11 and cut the repo rate by a total of 75bp this year. At the moment, the Riksbank projects a steady repo rate in Sweden, having slashed the main policy rate by 175bp at the December meeting.

The global downturn and the financial crisis will have a substantial impact on Sweden: Exports will fall, consumption will slow, investment will fall and the labour market will deteriorate, in our view. Incoming activity data point to marked contraction in the economy over the two winter quarters. We have lowered our 2009 GDP forecast further to -1%.

CPI inflation could reach negative territory this year: Contracting activity, falling commodity prices and aggressive rate cuts will likely push CPI inflation – which contrary to the HICP aggregate contains mortgage interest rate payments in order to estimate housing costs of owner-occupiers – close to zero by mid-year. If energy prices fail to recover over the course of this year, inflation could even move into negative territory, we think.

We expect growth to remain subdued in 2010: Partly because of an expansionary policy mix, with both monetary and fiscal policy becoming more and more expansionary, GDP growth will likely turn positive again in 2H09. Yet, we expect growth to remain subdued and project just 1.6% real GDP growth in 2010.

Sweden: Economic Forecasts 2006A 2007A 2008E 2009E 2010EReal GDP 4.3 2.7 0.7 -1.0 1.6Final domestic demand 3.6 3.3 2.0 0.8 2.1Unemployment rate (% of labour force) 7.1 6.1 6.2 7.4 7.4Inflation (CPI) 1.4 2.2 3.5 0.2 1.4 Current account (% of GDP) 8.5 8.4 7.1 5.8 6.0General govt. balance (% of GDP) 2.2 3.4 2.2 -0.2 -1.2General govt. debt (% of GDP) 46.0 40.2 35.6 33.4 31.5 Riksbank repo rate (%, EOP) 3.00 4.00 2.00 1.25 2.5010-year govt. bond yield (%, EOP) 3.80 4.34 2.38 3.55 4.70Spread over German 10-yr Bunds (bp) -15 2 -56 -20 20SEK/USD (EOP) 6.84 6.46 7.87 7.50 7.00Source: Riksbank, Morgan Stanley Research; E = Morgan Stanley Research estimates

New Zealand: Time to Use the Ammunition Manoj Pradhan (44 20) 7425 3805

Time to use the ammunition: We now expect the RBNZ to cut its policy rate by 100bp (we previously expected 50bp) at the January 29 meeting, followed by 50-75bp of rate cuts in March, leading to a terminal rate of 3% (we previously expected 4%) by 2Q09. The terminal rate has downside risks, depending on global credit market developments and whether domestic banks actively pass through the rate cuts. S&P’s recent negative outlook for foreign currency debt could make funding more expensive, possibly shifting some borrowing back home. Despite government guarantees for bank debt, the RBNZ may find it necessary to cut rates to help domestic borrowers

Actions do speak louder than words: The RBNZ’s last cut of 150bp in December was against its own guidance following the previous cut of 100bp in October. Then the RBNZ called an extraordinary press conference to guide markets against pricing in similar-sized cuts in the future. Its assessment of risks to growth clearly outweighs inflation concerns.

Not below neutral yet: Unlike the RBNZ, we do not find a 5% rate “accommodative”. The economy has endured a wrenching experience since the drought last summer. Productivity and potential output have very likely fallen, lowering the neutral real rate of interest. The RBNZ will thus probably find that it has to do more by way of rate cuts to stimulate the economy.

A softer policy mandate: The new Policy Target Agreement between the RBNZ and the government now has the objective of promoting a “growing, open and competitive economy” where “price stability plays an important role in supporting this objective”. This effectively allows the RBNZ to focus more on growth and paves the way for the rate cuts we envisage.

Bleak outlook: A possible economic contraction in 1H09, to which we had previously assigned a 30% probability, is now our base case. We expect the economy to contract or at best stay flat in 1H09. We also expect inflation to come back to its target range by mid-2009 and stay well below the upper end.

N. Zealand: Improvements in LIBOR and LIBOR-OIS

2

3

4

5

6

7

8

9

Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09

FORECAST

Source: RBNZ, Morgan Stanley Research estimates

7



Central Bank Watch

Czech Republic: Rates Heading Under 1%? Pasquale Diana (44 20) 7677 4183

Czech rates heading much lower: Our euro area team now expects the ECB to cut rates even more aggressively in the coming months, to 1% already by end-1Q09. The CNB, with such a soft inflation profile and the concrete possibility of GDP stagnation in the coming quarters, will likely take its cue from the ECB and cut aggressively. We see Czech rates at 0.75% by mid-2009, down from 2.25% currently.

Czech CPI continues its descent, inflation heading much lower in 2009: CPI eased from 4.4%Y in November to 3.6%Y in December, on the back of a 10% fall in fuel prices and softer-than-seasonal food prices. Core components were also well behaved. Inflation looks set to drop sharply in 2009 due to lower regulated price increases than in 2008, and could easily fall to below 1% already by mid-year.

Data continue to show mounting weakness: The trade balance in November came in far worse than expected, at -CZK0.5 billion (consensus: +CZK5.0 billion). Both exports (-17.9%Y) and imports flows (-13.2%Y) look weak, but exports disproportionately so, at least for now. The trade balance has been deteriorating in the last few months – it stood at 2.9% of GDP in August, and is now 2.1%. Weakness is particularly obvious in the car sector, where exports were down 21.4%Y and imports 19.6%Y.

Czech Republic: Headline and Core CPI Plunge

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08headline CSU core (ex reg. prices and tax but including food)

%Y

Source: Haver, Morgan Stanley Research

Hungary: NBH Still Walking a Fine Line Pasquale Diana (44 20) 7677 4183

The central bank governor’s tone remains dovish, with the usual caveat regarding financial stability: Last week, Governor Simor outlined Hungary’s rationale for monetary policy in the coming months. He continues to see the need for significantly lower rates ahead – and does not rule out cuts larger than 50bp – but thinks that financial stability continues to be of paramount importance. In his words, “a situation where rates are high and there is financing is better than having no financing at lower rates”.

We expect to see policy rates at 6.50% by year-end: On the exchange rate, Simor maintains that, at the current oil prices, even a weaker forint (he mentions 286 – the weakest level versus the euro reached in October) would still be consistent with the CPI target. As we stressed many times, the NBH is not concerned about a specific level, but rather the pace at which the HUF eases versus the EUR. Barring excessively fast HUF weakness or aggressive selling of HUF bonds by foreigners, we believe that the NBH will continue to take rates lower from the current 10%, and rates could reach 6.50% by the end of 2009.

The macro backdrop is unambiguously indicating that aggressive easing lies ahead, but will the NBH deliver? Macro data continue to disappoint, with preliminary November IP down 12.2%Y (10.1% adjusted for working days), after a 7.2%Y decline in October. There are no details yet at this stage, but we think that weakness was broad-based, with autos particularly hit. With our euro area team expecting Germany to post an even larger contraction in 2009, we expect to cut our Hungarian GDP growth forecast again soon (currently -2.4%Y in 2009). Note the very high correlation between the German and Hungarian IP cycles.

Hungary and Germany: IP in Freefall

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

German IP (6m/6m, ar), LHS Hungary IP (6m/6m, ar), RHS Source: Haver, Morgan Stanley Research

8



Central Bank Watch

Ukraine: Gas Not the Worst of its Worries Oliver Weeks (44 20) 7677 6302

Ukraine’s broader balance of payments difficulties remain intense and are unlikely to be significantly relieved by disbursement of the next IMF loan tranche. Ukraine’s end-December FX reserves were US$31.5 billion, down US$1.2 billion on the month. EUR strength in the month appears to have contributed around US$1.6 billion to the headline reserve figure. The IMF program’s net international reserve floor for the end-December is not straightforward to calculate, but we think this floor has narrowly been met. The other quantitative target data appear to be on track for now.

What have clearly not been met are some of the qualitative performance criteria: Tight currency controls remain in place, and the president has signed a 2009 government budget with a 3%-of-GDP deficit target, currently unfundable and going against the IMF’s demand for a balanced budget. Revising this tighter would further weaken a fragile government, but we believe this can be done, particularly as the budget is not strictly up for IMF review until April. In any case, we believe that disbursement of the next loan tranche, US$1.9 billion on February 15, is likely to proceed.

UAH risks remain on the downside, in our view: We estimate that the NBU spent US$10.4 billion to support the UAH during its sharp 4Q decline. The US$21.8 billion target for net international reserves at end-March suggests that it will have around US$4.9 billion available in 1Q. In November, the monthly current account deficit was still running at US$1.6 billion. Meanwhile, the sum of inward FDI and medium and long-term lending inflows had fallen to US$620 billion, while short-term capital outflows were running at US$2.1 billion.

Ukraine: FX Intervention to Be Increasingly Constrained

-10000

-5000

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08Total FX reserves NBU FX intervention IMF loan

US$ million

Source: NBU, Morgan Stanley calculations

South Africa: Tepid Growth in a Global Recession Michael Kafe, CFA (27 11) 507 0891 Andrea Masia (27 11) 507 0887

The outlook for the South African economy has deteriorated further: Whereas we initially expected a weaker currency to generate some export growth, it now appears that the world’s capacity to absorb South African exports will impose a much larger constraint on its external trade balance (and, as a corollary, GDP growth) in 2009. Weaker external trade volumes, in the face of declining commodity prices, are also likely to generate a negative feedback loop into private consumption, capital formation and fiscal revenues.

We expect South Africa’s 2009 GDP growth to come in at a meagre 0.8%Y (2.2%Y previously): Such a weak outlook for domestic GDP growth supports our call for an accelerated pace of policy rate cuts during 1H09. For the record, we expect the abolition of the slate levy (see below) to combine with dwindling prospects of demand-side inflationary pressures to provide the SARB with enough comfort to ease rates by 100bp at both the February and April MPC meetings, before settling for a 50bp cut in June. So, for all of 2009, we expect 250bp of rate cuts, bringing to 300bp the total easing in this cycle. Although this is 100bp more than previously thought, it is still less than the 400-450bp priced in by the fixed income market.

Slate levy move should accelerate pace of rate cuts: South Africa’s shift to a self-adjusting slate levy mechanism shaves some 45c/l off the regulated price of petrol immediately. This, along with benign oil prices and a relatively stable exchange rate, raises the likelihood that inflation falls back within the target range earlier than expected.

South Africa: Macro Forecast Revisions 2009E 2010E

Macroeconomic variable, %Y Old New Old NewReal GDP 2.3 0.8 3.7 3.6Private consumption 0.7 0.0 2.9 3.4Gross fixed investment 8.3 4.2 10.3 7.5Inventories (R billion) -2.9 -4.3 4.3 4.2Exports 4.7 -3.5 5.6 5.8Imports 6.7 0.3 10.4 10.9USDZAR (period-end) 10.8 10.8 11.4 11.4Target inflation (annual average) 6.3 5.3 5.9 5.7Current account balance (% of GDP) -8.2 -6.8 -8.2 -7.4PSBR (% of GDP) 3.0 5.0 3.2 5.5Policy interest rate (period-end) 10.0 9.0 10.0 9.0Source: National Treasury of South Africa,, Morgan Stanley Research estimates

9



Central Bank Watch

India: Deeper Industrial Slowdown Ahead Chetan Ahya (65) 6834 6738 Tanvee Gupta (91 22) 2209 7927

Capital inflows will remain weak for longer: Higher capital flows have been the anchor of a self-fulfilling virtuous cycle of an appreciating exchange rate, lower interest rates and strong domestic demand growth. We believe that a weak global environment and credit defaults in the developed world will mean continued risk-aversion, thus affecting the capital inflows trend in 2009.

Payback from India’s own credit cycle excesses: To the extent to which banks were aggressive in disbursing credit at unusually low rates to marginal borrowers at cycle-peak GDP growth, they are witnessing a rise in NPLs. This would make banks risk-averse to lend, resulting in a vicious slowdown. We expect credit growth to slow to 10%Y over the next 6-8 months.

Reducing 2009 growth estimates: Building in weaker domestic as well as external demand, we are cutting our GDP growth estimate for 2009 again to 4.3% from 5.3%. We expect recovery in 2010 to 6.1%, in line with the global growth trend.

Aggressive monetary easing but limited fiscal stimulus: We expect monetary policy easing to continue through to 1H09. We expect the repo rate (the key policy rate) to be reduced to 4.5% by June 2009. We also expect the RBI to supplement the rate cuts with additional liquidity support measures such as the cash reserve ratio cut. The government has been restrained in its fiscal policy response so far, and we believe that the measures announced so far are not large enough. Moreover, their effectiveness is uncertain. We believe that the government measures will help, but are not enough to prevent the downside in growth.

India: Commercial Sector Bank Credit Outstanding

638

93

186

0

100

200

300

400

500

600

700

Mar

-82

Mar

-84

Mar

-86

Mar

-88

Mar

-90

Mar

-92

Mar

-94

Mar

-96

Mar

-98

Mar

-00

Mar

-02

Mar

-04

Mar

-06

Mar

-08

More than tripled in five years

Doubled in eight years

US$ billion

Source: RBI, CEIC, Morgan Stanley Research

Korea: More Rate Cuts to Come Sharon Lam (852) 6834 6738

We maintain our view that the central bank will cut its policy rate to 1% by 2Q09: The 91D CD yield – a benchmark for lending rates – should flatten from the current 3.25% to below 2% within six months. Such a drop in interest rates will relieve private sector debt obligations, with savings on interest rate payments equivalent to almost 3% of GDP this year.

Bank of Korea cut rates by 50bp last week, bringing its policy rate down from an already historical low of 3% to 2.5%. This is the fifth rate cut since October, totaling 275bp – the most aggressive action ever in its rate-setting history. Some market participants were calling for a 100bp cut, but we expected the BoK to save some bullets for later, while also allowing fiscal stimulus to boost the economy.

We expect the BoK to cut again by at least 75bp at its February 12 meeting: Korea’s 4Q GDP data, due on January 23, are likely to show the first negative year-on-year growth since the IMF crisis; as such, the market will likely look for more aggressive action, and this is why we feel that the BoK has to save some fire power. Note that Korea is the last of the tiger economies in the region to enter into recession.

Although it will get worse before it gets better, we believe that Korea will turn around faster than other economies: While we do not expect the economy to bottom until 2Q09, we think the government deserves credit for picking up the momentum in everything from monetary easing to fiscal stimulus to early action on industry restructuring and bank recapitalization. The government also plans to front-load 62.5% of its 2009 budget in 1H to speed up the recovery.

Korea: Policy Rate Outlook

BOK Base Rate, %

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Jun-

99

Dec

-99

Jun-

00

Dec

-00

Jun-

01

Dec

-01

Jun-

02

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

MS

Fore

cast

s

Source: CEIC, Morgan Stanley Research estimates

10



Central Bank Watch

Thailand: Aggressive Easing Continues Shweta Singh (91 22) 2209 7928 Chetan Ahya (65) 6834 6738 Deyi Tan (65) 6834 6703

1D repurchase rate reduced by 75bp to 2.0%: In its monetary policy meeting today, the BoT continued with its aggressive easing stance and reduced policy rates by 75bp to 2.0%. This was in line with our expectations, but higher than consensus expectations of a 50bp cut. This follows the 100bp cut on December 3, 2008, which was the largest cut since the implementation of the inflation-targeting regime in May 2000. In its statement, the BoT highlighted that the economy continued to face numerous negative risks on both domestic and external fronts. It expressed optimism on the return of political stability, while maintaining that the impact of the fiscal stimulus would take some time to materialize. At the same time, it held that risks to inflation remain on the downside.

More easing in the pipeline: Growth concerns are being exacerbated by external and domestic headwinds. November exports posted the steepest decline since data became available (January 1994), while monthly domestic demand continues to nose-dive on weak sentiment, pointing to dismal 4Q08 growth. While the new government offers hope in terms of a potential return to political stability and implementation of stimulus measures, the impact of spending should be visible only with a lag. On the other hand, inflationary risks are abating on receding commodity prices and fiscal measures. Moreover, weakening domestic demand will also likely offer respite on this front. Indeed, December inflation moderated to 0.4%Y. In fact, we now see risks tilted towards deflationary concerns. The Finance Ministry and BoT have agreed to narrow the 2009 inflation target range to 0.5-3.0% (core inflation, quarterly average) from 0-3.5% in an attempt to diffuse these pressures. Taking into account the elevated downside risks to growth as well as easing price pressures, we expect policy rates to decline to 0.5% by 2Q09 and remain there for the rest of the year.

Thailand: Monetary Policy Rate

-1

1

2

3

4

5

6

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

1-day repurchase rate

Source: CEIC, Morgan Stanley Research

Latin America: Easing Cycle Begins Gray Newman (1 212) 761 6510 Marcelo Carvalho (55 11) 3048 6272 Luis Arcentales (1 212) 761 4913

The great global monetary easing has finally arrived in Latin America: The actions of Chile and Colombia have investors asking if Mexico’s central bank, which meets this week, and Brazil’s central bank, which meets next, will join the ‘front-loaders’. See Brazil and Mexico comments that follow.

Our cautious stance on monetary policy and the 2009 growth record is based on four concerns: (1) We do not expect to see a dramatic reduction in interest rates on par with what we are seeing in the developed world. (2) The level of financial intermediation and role of credit in most of Latin America are still limited. (3) It’s hard to imagine that credit growth will play a meaningful role in boosting economic activity even as monetary policy is eased. And (4) what appears to be motivating the ‘front-loaders’ is a sharper-than-expected decline in activity.

The greatest threat to the region is the current global downturn – the impact of monetary policy is likely to pale in comparison. Latin American central banks are now responding precisely because the global downturn has hit the region. And we would warn against overestimating the magnitude of the interest rate cuts to come and overstating the traction that this easing may have. See This Week in Latin America (January 12, 2008) for details.

Latin America: Total Bank Loans (% of GDP, 2007)

0

10

20

30

40

50

60

70

80

Chile Brazil Colombia Peru Mexico Argentina

Source: Central banks and banking regulators, Morgan Stanley Research

11

https://secure.ms.com/eqr/rlink/webapp/Research?action=streamFile&docId=727011&docFileType=1&linksrc=rl-res-site&lastParam=/GNEW011209.pdf

https://secure.ms.com/eqr/rlink/webapp/Research?action=streamFile&docId=727011&docFileType=1&linksrc=rl-res-site&lastParam=/GNEW011209.pdf



Central Bank Watch

Brazil: Rate Cuts – How Fast, How Much? Marcelo Carvalho (55 11) 3048 6272

There seems to be little doubt that Brazil will cut interest rates this month: While the COPOM kept rates unchanged in December in a unanimous vote, the accompanying policy statement emphasized that a majority of board members already discussed a (25bp) rate cut at that meeting. The subsequent December COPOM minutes and the 4Q inflation report reinforced the impression that the COPOM is about to embark on a monetary easing cycle.

Although the COPOM discussed a 25bp cut in December, recent data support the notion of a larger move, we suspect. Our forecast assumes a 50bp rate cut at the January 21 policy meeting. But a larger cut cannot be ruled out – and the central bank board members might be willing to consider 75 or 100bp. After all, recent growth data suggest a sharp contraction in 4Q08 – and a contraction that seems more severe than what the authorities themselves may have envisaged. And other central banks in the region and elsewhere have surprised with larger-than-expected rate cuts, if anything. Also, when the central bank embarked on a tightening cycle, the COPOM made the case that a front-loaded approach should prove more effective in achieving the central bank’s goals, in part through the expectations channel, as this could send a strong, clear message to markets. If this view also applies to an easing cycle, then the central bank might judge that it has a case for front-loaded rate cuts.

Recent benign inflation data should facilitate the central bank’s job: Pass-through from currency depreciation into inflation has been surprisingly low so far. It is hard to be sure whether or not this is just a temporary phenomenon. Global disinflation and falling international commodity prices surely help, but it is also possible that an inventory correction might be keeping the pass-through temporarily low.

It appears possible that inflation might still move up in the coming months (in lagged response to previous currency devaluation) before if heads down again later on. In fact, the latest quarterly inflation report has warned that inflationary pressures from currency might materialize faster than the eventual disinflationary help from slower demand. In sum, IPCA inflation turned out at 5.9% for 2008 as a whole – above the 4.5% target center but below the 6.5% target ceiling. In all, while pass-through from the currency remains a potential concern, recent data have proved benign so far.

Mexico: Proceed with Caution Luis Arcentales (1 212) 761 4913

We have little doubt that Mexico’s central bank will cut interest rates this month: We expect Banco de Mexico to balance a 25bp rate cut on January 16 with hawkish comments – emphasizing that the board will need to see an improved inflation dynamic to justify rates cuts of the magnitude that markets are now beginning to price in. We can’t rule out a 50bp cut, but calls for an even larger reduction appear highly unlikely to us.

We highlight three changes since the bank last met to decide on rate policy in late November: (1) Economic activity has weakened substantially. Industrial production, where the link with the US is the strongest, has posted annual declines in every month since May. And conditions for Mexico’s struggling industrial sector are set to get much worse before they get better. (2) The peso appears to have stabilized. While we are still seeing volatility in the peso market and volumes have remained reduced, the extreme moves seen in October and November appear to be behind us. (3) Mexico is no longer feeling the impact of rising energy prices and is seeing some price relief.

Nonetheless, we would caution against a front-loading cut in Mexico of the magnitude seen in Chile: Precisely because Mexico never saw the same soaring energy prices in 2008 seen in Chile, we don’t expect to see as sharp a reversal. Further, Mexico’s inflationary damage appears to have become a bit more deep-rooted than in Chile. Core inflation has been rising and is now at its highest level in over seven years.

Mexico: Goods and Services Core Inflation (%Y)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08

HousingOther servicesProcessed FoodOther goods

Source: Banxico

12



Central Bank Watch

Chile: Monetary Shock and Awe Luis Arcentales (1 212) 761 4913

Chile’s central bank slashed its target interest rate by 100bp to 7.25% at its first meeting of 2009, while maintaining the easing bias first introduced in December. The decision was triggered by deterioration in the pace of economic activity and an improvement on the prices front, including a “reduction in core measures of inflation”. In addition, we suspect that recent aggressive moves by other central banks – such as the Bank of England’s decision to cut its target rate to 1.5%, the lowest level since it was founded in 1694 – also played a role.

Both inflation and economic activity have declined sharply since the central bank’s previous meeting on December 11. January’s statement cited a “relevant deterioration” in the pace of economic activity during 4Q08. Indeed, real economy data since October have reflected a significant deterioration, which has been remarkable in its speed, breath and magnitude.

Courtesy of a pullback in gasoline prices, annual headline inflation readings have improved sharply to 7.1% in December from 9.9% in October. December data began to show modest improvement in inflation excluding food and energy, which had been on a nearly uninterrupted uptrend for over a year; meanwhile, inflation expectations in the relevant two-year horizon have moved down towards the 3% target.

Consistent with January’s aggressive interest rate reduction, the Monetary Policy Report due January 14 will likely include a new round of reductions to the central bank’s 2009 GDP forecast, probably to 1.0-2.0%, and also inflation, which will likely be inside the 2.0-4.0% target range by the end of 2009.

Chile: Central Bank Target Interest Rate, Inflation

-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%11.0%

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-090.0%

1.5%

3.0%

4.5%

6.0%

7.5%

9.0%

CB Target Rate (Annual Rate, RHS) Headline Inflation (%Y) Core Inflation* (%Y) Source: Banco Central de Chile, INE; *CPIX1

Peru: No Cut, but Door Open for Cutting Boris Segura (1 212) 761 0930

The BCRP left its reference rate unchanged on January 8 at 6.50%, but cut reserve requirements on bank deposits by 100bp. The central bank expects inflation to drop soon, due to the fall in international commodity and energy prices, so that it converges to its 2% target. The BCRP also signaled an easier monetary policy, as long as inflation and inflation expectations converge to the target.

The bar is low indeed for monetary easing: Taking into account that headline inflation has already peaked, by definition it is very likely that inflation and inflation expectations converge to the BCRP’s 2% target. Therefore, the bar to cut its reference rate is low indeed. We don’t expect the central bank to reach its target in 2009, but we are of the view that the authorities are likely to take advantage of any fall in inflation to cut rates, so as not to fall behind Peru’s peers in Latin America. In fact, as we highlighted throughout 2008, managing reserve requirements as a substitute to the policy rate is likely to reduce the signaling device of the BCRP’s reference rate in an inflation-targeting regime.

Peru: Real Central Bank Reference Interest Rate

0.0%

1.0%

2.0%

3.0%

4.0%

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

Average 2005:01-2008:12

%, deflated by 12mma core CPI inflation

Source: BCRP, Morgan Stanley Latam Economics

13



Central Bank Watch

Venezuela: High Inflation, No Relief in Sight Boris Segura (1 212) 761 0930

The BCV released December inflation figures: The national CPI rose by 2.6%M, above consensus (2.2%M) but close to our 2.5%M estimate. 2008 inflation rose to 30.9%Y, easily the highest among Latin American countries that publish credible price data.

Again, food and non-alcoholic beverages showed the highest jump in prices (+3.9%), followed by restaurants & hotels (+3.8%) and transportation (+3%).

Core inflation came in at 2.4%M, ending the year at 31.7%Y: This suggests that the inflation phenomenon in Venezuela is broad-based, and not just contained to food prices.

But the less reassuring part of the story is that we see no inflation relief in 2009: The collapse in oil prices is likely to prompt the authorities to perform a discrete devaluation of the currency, which would add further fuel to the inflation fire. If the authorities go for discrete devaluation – moving transactions out of Cadivi into the permuta FX market – they will still end up with the inflation shock, but without the urgently needed fiscal revenues. We forecast year-end inflation at 45%.

Venezuela: No Inflation Relief

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08

%M

Source: BCV

14



Monetary Policy Outlook – Morgan Stanley versus Markets

0

1

2

3

4

5

6

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

MS ForecastMkt ImpliedActual

United States

• Fed has shifted to quantitative easing policy with MBS,

agency and ABS purchase plans.

• Focus for now will be on these recently announced plans, but other quantitative easing measures are possible.

1

1.5

2

2.5

3

3.5

4

4.5


MSForecastMkt Implied

Actual

Euro Area

• Our base case is for a further 150bp of rate cuts in 1Q09,

more than the market is pricing in.

• The next cut could come as early as this week.

-0.25

0

0.25

0.5

0.75


MS Forecast Mkt Implied Actual

Japan

• We expect another rate cut and further progress towards

restoration of ZIRP by the Jan-Mar quarter of 2009.

• The enlargement of the range of eligible collateral is also likely by the same quarter.

0

1

2

3

4

5

6

7


MS Forecast

Mkt Implied

Actual

United Kingdom

• More rate cuts priced in…we think probably too many.

• Balance of risk skewed to the downside of our central forecast, on significant risks to GDP growth.


15




0

1

2

3

4

5



Canada

• External shocks have pushed the Canadian economy into

recession.

• Protracted currency weakness could serve as a substitute for BoC rate cuts.

0

0.5

1

1.5

2

2.5

3

3.5



Switzerland

• Looking for one more cut to 0.25% in 1Q.

• A move to ZIRP is possible if financial woes don’t subside.

0

1

2

3

4

5



Sweden

• Riksbank hinted at steady rates in 2009.

• Some small downside risks to an extended holding operation exists

1

2

3

4

5

6

7


MS Forecast Actual

Norway

• Two instalments of 50bp likely going forward…

• …but a single 100bp move is also possible.


16




2

3

4

5

6

7

8



Australia

• Market expects further rapid rate cuts – with 75-100bp priced

in for the February Board meeting. • We see a trough at 3%, but risks to downside.

We see less aggressive tightening in 2010.

3

4

5

6

7

8

9



New Zealand

• We expect the RBNZ to cut rates by 100bp at its next

meeting, with a terminal rate of 3% by 2Q09.

• Markets are converging to our view both in terms of the next meeting as well as the terminal rate.

2

3

4

5

6

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09


Poland

• MPC has turned more dovish; we see rates moving much

lower by mid-2009.

• Zloty weakness could slow rate cuts, however.

6

7

8

9

10

11

12

13

14

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09


South Africa

• We expect 250bp of rate cuts in 2009. Market expects 400bp,

buoyed by recession and deflationary fears.

• Risks are tilted towards a more aggressive policy response if inflation decelerates faster than expected.

Source: National Central Banks, Morgan Stanley Research Notes: (u) = unofficial target; Interest rate expectations are implied by overnight indexed swap (OIS) curves and may differ from those implied by other instruments; where adequate OIS data are not available, FRAs, foreign exchange swaps, and/or interbank cash rate futures are used; due to varying risk premia (such as liquidity, basis, credit, term, reserve management, calendar turns, etc.), these figures should be used as estimates only; where such instruments are not available, we have inserted our best guess of what markets expect based on consensus estimates..

17



Global Monetary Policy Rate Forecasts Global Economics Team

Current 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

Last change (bps)

Since peak/ trough (bp)

Since Dec 06 (bp)

United States 0.125 0.125 0.125 0.125 0.125 0.75 1.50 2.25 3.00 -87.5 (16/12/08) -512.5 -512.5 Euro Area 2.50 1.00 1.00 1.00 1.25 1.75 2.25 2.50 2.75 -75 (04/12/08) -175 -50 Japan 0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.25 -20 (19/12/08) -40 -40 United Kingdom 1.50 1.50 1.50 2.00 2.50 3.25 3.50 3.75 4.00 -100 (04/12/08) -425 -350 Canada 1.50 1.25 1.25 1.25 1.75 2.00 2.50 3.00 3.50 -75 (09/12/08) -300 -275 Switzerland 0.50 0.25 0.25 0.25 0.25 0.50 0.75 1.00 1.50 -50 (11/12/08) -225 -150 Sweden 2.00 1.50 1.25 1.25 1.25 1.75 2.00 1.25 2.50 -175 (04/12/08) -275 -100 Norway 3.00 2.00 2.00 2.00 2.00 2.25 2.50 2.75 3.00 -175 (17/12/08) -275 -75 Australia 4.25 3.75 3.50 3.00 3.00 3.00 3.50 3.75 4.00 -100 (02/12/08) -300 -100 New Zealand 5.00 3.50 3.00 3.00 3.00 3.00 3.25 3.50 4.00 -150 (04/12/08) -325 -225 Russia 9.00 11.00 12.00 12.00 12.00 12.00 11.00 11.00 10.00 +100 (28/11/08) 300 - Poland 5.00 4.00 3.50 3.50 3.50 3.75 4.00 4.25 4.25 -25 (26/11/08) -100 100 Czech Republic 2.25 1.25 0.75 0.75 1.25 1.50 1.75 2.00 2.25 -50 (06/11/08) -150 -25 Hungary 10.00 9.00 8.00 7.00 6.50 6.50 6.50 6.50 6.50 -50 (24/11/08) -150 200 Romania 10.25 9.75 9.25 9.00 8.50 8.25 8.00 7.75 7.50 +25 (31/07/08) 325 150 Ukraine 12.00 14.00 15.00 15.00 15.00 15.00 15.00 14.00 13.00 +200 (01/04/08) 400 - Turkey 15.00 13.00 12.50 12.50 12.50 13.00 13.50 13.50 13.50 -125 (19/12/08) -25 -250 Israel 1.75 1.25 1.00 1.00 1.00 1.50 2.25 3.00 3.50 -75 (30/12/08) -250 -175 UAE 1.50 1.50 1.50 1.50 1.50 2.00 2.50 3.00 3.50 -50 (08/10/08) -375 -375 South Africa 11.50 10.50 9.50 9.00 9.00 9.00 9.00 9.00 9.00 -50 (11/12/08) -50 250 Nigeria 9.75 9.75 9.75 9.25 8.75 8.75 8.75 8.75 8.75 -50 (18/09/08) -50 -25 China 5.31 4.50 3.96 3.96 3.96 3.96 3.96 3.96 3.96 -27 (23/12/08) -216 -81 India 5.50 5.00 4.50 4.50 4.50 4.75 5.00 5.25 5.50 -100 (02/01/09) -350 -175 Hong Kong 0.50 0.50 0.50 0.50 0.50 1.00 1.75 2.75 3.50 -100 (17/12/08) -625 -625 Korea 2.50 1.25 1.00 1.00 1.00 1.00 1.00 1.25 1.50 -50 (08/01/08) -275 -200 Taiwan 1.500 1.00 0.50 0.50 0.50 0.50 1.00 1.25 1.50 -50 (07/01/09) -213 -125 Singapore 0.88 0.70 0.70 0.60 0.60 1.10 1.55 1.95 2.05 - - - Indonesia 8.75 8.25 8.00 8.00 8.00 8.00 8.00 8.00 8.00 -50 (07/01/09) -300 -00 Malaysia 3.25 2.50 1.50 1.00 1.00 1.00 1.25 1.75 2.25 -25 (24/11/08) 55 -25 Thailand 2.00 1.50 0.50 0.50 0.50 0.75 1.75 2.50 3.00 -75 (14/01/09) -100 -100 Brazil 13.75 12.75 11.75 11.75 11.75 11.75 11.75 11.75 11.75 +75(10/09/08) 250 50 Mexico 8.25 8.25 8.00 7.25 6.50 6.00 6.00 6.00 6.00 +25 (15/08/07) 125 75 Chile 7.25 5.75 5.75 5.75 5.75 4.25 4.00 4.00 4.00 -100 (08/01/09) -100 200 Peru 6.50 6.50 6.25 6.25 6.00 6.00 5.75 5.75 5.50 +50 (08/08/08) 200 200 Colombia 9.50 9.00 8.50 8.25 8.00 7.75 7.50 7.50 7.50 -50 (19/12/08) -50 200 Global Policy Rate 3.0 2.6 2.4 2.4 2.4 2.7 3.0 3.3 3.6 std. deviation 4.3 4.4 4.4 4.3 4.2 4.1 3.9 3.7 3.4 # countries above 18 17 17 17 18 0 0 0 0 # countries below 15 16 16 16 15 33 33 33 33 G10 Policy Rate 1.2 0.6 0.6 0.6 0.8 1.3 1.8 2.2 2.7 std. deviation 1.4 1.2 1.1 1.0 1.1 1.1 1.2 1.2 1.2 # countries above 6 6 6 6 6 0 0 0 0 # countries below 3 3 3 3 3 9 9 9 9 Source: National Central Banks, Morgan Stanley Research Note: Global policy rates are GDP weighted averages of national policy rates

18



Global GDP and Inflation Forecasts 2006 2007 2008E 2009E 2010E 2006 2007 2008E 2009E 2010E

Global Economy 5.1 5.0 3.4 0.5 3.3 3.7 4.0 6.1 2.3 3.5Industrial World (52.1) 2.8 2.4 0.9 -1.9 1.4 2.4 2.2 3.3 -0.1 2.2Developing World (47.9) 7.7 7.8 6.1 2.9 5.0 5.1 6.0 9.0 4.6 4.8

US (21.3) 2.8 2.0 1.1 -2.4 2.1 3.2 2.9 3.8 -1.3 2.8Australia (1.2) 2.9 4.0 2.3 -1.1 2.3 3.5 2.3 4.6 2.7 1.6Canada (2.0) 3.1 2.7 0.7 -1.5 0.3 2.0 2.1 2.4 -0.1 2.2New Zealand (0.2) 1.5 3.0 0.7 0.6 1.1 3.4 2.4 4.2 2.3 2.7

Europe (20.4) 3.0 2.7 0.8 -1.5 1.2 2.2 2.2 3.3 1.0 2.2EMU (15.9) 3.0 2.6 0.9 -1.6 1.1 2.2 2.1 3.3 1.1 2.2Austria (0.5) 3.4 3.1 1.5 -1.6 0.9 1.7 2.2 3.3 1.5 2.4Belgium (0.6) 3.0 2.6 1.3 -0.9 1.6 1.8 1.8 4.5 1.4 2.1Denmark (0.3) 3.3 1.6 -0.9 -1.4 0.8 1.9 1.7 3.4 1.0 2.1Finland (0.3) 4.9 4.4 1.6 -0.9 1.5 1.6 2.5 4.1 1.8 2.6France (3.2) 2.4 2.1 0.8 -1.4 0.9 1.7 1.5 2.8 1.1 1.9Germany (4.3) 3.0 2.5 1.4 -2.3 1.3 1.6 2.3 2.6 0.9 1.5Greece (0.6) 4.5 4.0 2.9 -0.1 2.3 3.3 3.0 4.2 1.6 3.0Ireland (0.3) 5.7 6.0 -0.8 -1.9 1.7 2.7 2.9 3.2 1.4 1.7Italy (2.8) 1.9 1.4 -0.5 -1.3 0.8 2.1 1.8 3.3 1.1 2.0Netherlands (1.0) 3.4 3.5 1.8 -1.5 1.1 1.2 1.6 2.5 1.6 2.7Portugal (0.4) 1.4 1.9 0.3 -1.8 0.5 3.1 2.4 2.7 0.8 2.2Spain (2.1) 3.9 3.7 1.1 -2.0 0.4 3.5 2.8 4.1 1.4 2.7Sweden (0.5) 4.3 2.7 0.7 -1.0 1.6 1.4 2.2 3.5 0.2 1.4UK (3.3) 2.8 3.0 0.8 -1.1 2.0 2.3 2.3 3.6 0.9 2.5

CEEMEA (8.6) 7.0 6.6 4.2 0.5 3.2 6.9 7.0 11.4 7.4 7.2Czech Republic (0.4) 6.8 6.0 4.0 0.0 1.9 2.5 2.9 6.4 1.0 2.1Hungary (0.3) 4.1 1.1 1.1 -3.3 0.8 3.4 7.8 6.1 2.1 2.9Israel (0.3) 5.2 5.4 4.5 1.5 4.9 2.1 0.5 4.6 2.6 1.9Kazakhstan (0.3) 10.6 9.5 2.5 0.0 1.5 -2.2 -7.0 7.0 -7.5 -2.0Poland (1.0) 6.2 6.7 4.8 1.4 3.0 0.9 2.3 4.2 2.4 2.3Romania (0.4) 7.9 6.0 7.7 1.7 4.5 6.6 4.9 7.9 5.1 4.5Russia (3.2) 7.4 8.1 5.5 1.5 3.0 9.7 9.0 14.1 10.4 10.6Turkey (1.4) 6.9 4.6 1.4 -0.5 3.8 9.6 8.8 10.5 7.5 6.5South Africa (0.7) 5.4 5.1 3.2 0.8 3.6 4.6 6.5 11.4 5.3 5.7Ukraine (0.5) 7.1 7.6 2.0 -7.0 2.5 9.0 12.8 25.3 20.0 15.0United Arab Emirates (0.3) 9.4 7.4 6.4 3.8 4.7 9.3 11.1 12.0 8.6 7.1

Japan (6.6) 2.0 2.4 -0.1 -2.0 0.2 0.1 0.0 1.5 -0.1 0.6Asia ex-Japan (22.2) 9.3 9.5 7.6 5.5 7.0 3.4 4.6 6.5 1.4 2.7China (10.8) 11.6 11.9 9.2 7.5 8.5 1.5 4.8 6.1 -0.8 1.5Hong Kong (0.5) 7.0 6.4 2.8 -1.2 2.7 2.0 2.0 4.5 2.0 -1.5India (4.6) 9.8 9.3 7.5 4.3 6.1 6.3 6.4 8.2 4.8 5.0Indonesia (1.3) 5.5 6.3 6.0 2.5 4.5 13.1 6.4 9.8 9.0 7.5Korea (1.9) 5.1 5.0 2.9 2.7 4.5 2.2 2.5 4.7 3.0 3.0Malaysia (0.5) 5.8 6.3 5.5 0.5 4.2 3.0 2.2 5.6 1.5 3.0Singapore (0.3) 8.2 7.7 2.8 -2.5 3.2 1.0 2.1 6.5 0.8 1.3Taiwan (1.1) 4.9 5.7 1.8 0.5 4.0 0.6 1.8 3.5 0.0 2.0Thailand (0.8) 5.3 4.9 4.6 1.5 3.5 4.7 2.2 5.5 1.0 2.7

Latin America (7.4) 5.4 5.8 4.5 -0.4 2.6 5.4 5.8 8.0 9.0 7.2Argentina (0.8) 8.5 8.7 6.7 -2.2 1.0 10.9 8.8 8.6 10.0 8.0Brazil (2.8) 3.7 5.7 5.4 0.0 3.0 4.2 3.6 5.7 6.4 5.2Chile (0.4) 4.3 5.1 4.0 1.5 3.0 3.4 4.4 8.7 7.1 4.0Colombia (0.5) 6.8 7.7 3.5 1.5 2.5 4.5 5.7 7.7 4.8 5.1Mexico (2.1) 4.9 3.2 1.8 -1.5 2.2 3.6 4.0 5.1 5.0 4.3Peru (0.3) 7.6 9.0 9.5 4.0 5.0 1.1 3.9 6.7 4.7 5.0Venezuela (0.5) 10.3 8.4 5.0 -1.0 2.0 17.0 22.5 30.9 45.0 35.0

Real GDP (%) CPI Inflation (%)

Source: National Statistics Offices, IMF, Morgan Stanley Research estimates Note: Figures in parenthesis indicate the country’s or region’s weight (in %) in global GDP, using PPPs.

19



Global Economics Team Richard Berner & Joachim Fels, Co-heads of Global Economics

Global Fixed Income Economics Joachim Fels Global [email protected] +44 (0)20 7425 6138 Manoj Pradhan Global [email protected] +44 (0)20 7425 3805 Spyros Andreopoulos Global [email protected] +44 (0)20 7677 0528

Americas

Richard Berner US [email protected] +1 212 761-3398 David Greenlaw US [email protected] +1 212 761-7157 Ted Wieseman US [email protected] +1 212 761-3407 David Cho US [email protected] +1 212 761-0908

Gray Newman Latam [email protected] +1 212 761-6510 Marcelo Carvalho Brazil [email protected] +55 11 3048-6272 Boris Segura Colombia, Peru, Venezuela [email protected] +1 212 761-0930 Luis Arcentales Chile, Mexico [email protected] +1 212 761-4913 Daniel Volberg Argentina [email protected] +1 212 761-0124 Europe & South Africa

Elga Bartsch Euro Area, ECB, Germany [email protected] +44 (0)20 7425 5434 Carlos Caceres Euro Area, Spain, France [email protected] +44 (0)20 7425 8943 David Miles UK [email protected] +44 (0)20 7425 1820 Melanie Baker UK [email protected] +44 (0)20 7425 8607 Oliver Weeks Russia, Kazakhstan, Ukraine [email protected] +44 (0)20 7677 6302 Tevfik Aksoy Turkey, MENA [email protected] +44 (0)20 7677 6917 Mohamed Jaber MENA [email protected] +44 (0)20 7677 8189 Pasquale Diana Poland, Hungary, Czech, Slovakia [email protected] +44 (0)20 7677 4183 Michael Kafe South Africa, Nigeria [email protected] +27 11 507 0891 Andrea Masia South Africa [email protected] +27 11 507 0887 Alina Slyusarchuk Russia, Kazakhstan, Ukraine, Baltics [email protected] +44 (0)20 7677 6869 Asia

Robert Feldman Japan [email protected] +81 3 5424 5385 Takehiro Sato Japan [email protected] +81 3 5424 5367 Takeshi Yamaguchi Japan [email protected] +81 3 5424 5387

Qing Wang Greater China [email protected] +852 2848 5220 Denise Yam China, Hong Kong [email protected] +852 2848 5301 Sharon Lam Korea, Taiwan [email protected] +852 2848 8927 Steven Zhang China, Hong Kong [email protected] +86 21 2326 0015 Katherine Tai China, Hong Kong, Korea, Taiwan [email protected] +852 2848 8191

Chetan Ahya ASEAN, India [email protected] +65 6834 6738 Deyi Tan Singapore, Malaysia [email protected] +65 6834 6703 Shweta Singh ASEAN [email protected] +91 22 2209 7928 Tanvee Gupta India [email protected] +91 22 2209 7927

20




































Disclosure Section The information and opinions in Morgan Stanley research were prepared or are disseminated by Morgan Stanley & Co. Incorporated and/or Morgan Stanley C.T.V.M. S.A. and/or Morgan Stanley & Co. International plc and/or Morgan Stanley Japan Securities Co., Ltd. and/or Morgan Stanley Asia Limited and/or Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H) and/or Morgan Stanley Taiwan Limited and/or Morgan Stanley & Co International plc, Seoul Branch, and/or Morgan Stanley Australia Limited (A.B.N. 67 003 734 576, holder of Australian financial services licence No. 233742, which accepts responsibility for its contents), and/or Morgan Stanley India Company Private Limited and their affiliates (collectively, "Morgan Stanley"). As used in this disclosure section, Morgan Stanley includes RMB Morgan Stanley (Proprietary) Limited, Morgan Stanley & Co International plc and its affiliates. For important disclosures, stock price charts and rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Equity Research Management), New York, NY, 10036 USA. Global Research Conflict Management Policy Morgan Stanley Research observes our conflict management policy, available at www.morganstanley.com/institutional/research/conflictpolicies. Important Disclosures Morgan Stanley Research does not provide individually tailored investment advice. It has been prepared without regard to the circumstances and objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages them to seek a financial adviser's advice. The appropriateness of an investment or strategy will depend on an investor's circumstances and objectives. Morgan Stanley Research is not an offer to buy or sell any security or to participate in any trading strategy. The value of and income from your investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. With the exception of information regarding Morgan Stanley, research prepared by Morgan Stanley Research personnel is based on public information. Morgan Stanley makes every effort to use reliable, comprehensive information, but we do not represent that it is accurate or complete. We have no obligation to tell you when opinions or information in Morgan Stanley Research change apart from when we intend to discontinue research coverage of a company. Facts and views in Morgan Stanley Research have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel. To our readers in Taiwan: Morgan Stanley Research is distributed by Morgan Stanley Taiwan Limited; it may not be distributed to or quoted or used by the public media without the express written consent of Morgan Stanley. To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia Limited as part of its regulated activities in Hong Kong; if you have any queries concerning it, contact our Hong Kong sales representatives. Morgan Stanley Research is disseminated in Japan by Morgan Stanley Japan Securities Co., Ltd.; in Canada by Morgan Stanley Canada Limited, which has approved of and takes responsibility for its contents in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin);in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, supervised by the Spanish Securities Markets Commission(CNMV), which states that it is written and distributed in accordance with rules of conduct for financial research under Spanish regulations; in the US by Morgan Stanley & Co. Incorporated, which accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized and regulated by Financial Services Authority, disseminates in the UK research it has prepared, and approves solely for purposes of section 21 of the Financial Services and Markets Act 2000, research prepared by any affiliates. Private UK investors should obtain the advice of their Morgan Stanley & Co. International plc representative about the investments concerned. In Australia, Morgan Stanley Research and any access to it is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by Morgan Stanley International Holdings Inc. and FirstRand Investment Holdings Limited, which is wholly owned by FirstRand Limited. Trademarks and service marks in Morgan Stanley Research are their owners' property. Third-party data providers make no warranties or representations of the accuracy, completeness, or timeliness of their data and shall not have liability for any damages relating to such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley bases projections, opinions, forecasts and trading strategies regarding the MSCI Country Index Series solely on public information. MSCI has not reviewed, approved or endorsed these projections, opinions, forecasts and trading strategies. Morgan Stanley has no influence on or control over MSCI's index compilation decisions. Morgan Stanley Research or portions of it may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. Morgan Stanley research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities/instruments is available on request. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial Services Authority (the DFSA), and is directed at wholesale customers only, as defined by the DFSA. This research will only be made available to a wholesale customer who we are satisfied meets the regulatory criteria to be a client. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined by the QFCRA. As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage houses, portfolio management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations.

21


The Americas 1585 Broadway New York, NY 10036-8293 United States Tel: +1 (1)212 761 4000

Europe 20 Bank Street, Canary Wharf London E14 4AD United Kingdom Tel: +44 (0)20 7425 8000

Japan 4-20-3, Ebisu, Shibuya-ku, Tokyo 150-6008, Japan Tel: +81 (0)3 5424 5000

Asia/Pacific 1 Austin Road West Kowloon Hong Kong Tel: +852 2848 5200

© 2009 Morgan Stanley

MS 09-01-14 Global Monetary Analyst

Documents

Transcript of MS 09-01-14 Global Monetary Analyst