The Reserve Bank of Australia's (RBA) decision to pause for a rate hike in December was largely influenced by the prevailing financial troubles besetting the European continent, which it noted had markedly deterioarated.

According to the RBA December 7 board meeting minutes released on Tuesday, board members are mostly wary of the downward spiral that the European economy is heading to, describing the continental development as reflecting "little change from that at earlier meetings."

The minutes showed that the RBA is raising its alarm on the possibility of emerging risks for the Australian economy in so far as the effects of the Euro crisis is concerned while at the same time not discounting the ill-effects of the financial troubles' eventual ending.

The whole issue of the European crisis that plunged the economies of Ireland, Portugal, Spain, Italy and Belgium into submission appeared to have delivered much worry to RBA board members that its December meeting was clearly dominated by concerns on the continent's economic woes.

The board conceded that situations in the financial markets were greatly swayed by the Euro crisis and it emphasised that "the deterioration in the situation in Europe over the past month had increased the downside risks to the global economy."

The RBA board further revealed that its growing concern was sparked by its firm belief that volatility in the financial markets could deliver more debilitating impact on the Australian economy than any feasible demand declines for the country's commodity offerings.

While the central bank is open to the idea that recovery could set in soon, crisis escalation is not also a remote possibility as the RBA stressed that "if this prompted a fresh retreat from risk-taking in global financial markets, it would probably have more impact on Australia than any trade effect."

The new RBA board meeting minutes did not divulge the likelihood of a rate hike if conditions in Europe were more favourable but it clearly indicated that runaway bank loan rates and the almost parity level of the Australian currency against the US dollar were all factored in when it decided to hold off lifting the cash rate in December.

Despite its move to stay for the December rate, the RBA highlighted the generally positive outlook of the Australian economy, stressing that the economic environment was just appropriate and the prevailing moderate household consumption provides sufficient cushion for any build up of inflationary pressures.

Also, the RBA refused to give out clues on its future policy rate decisions but it hinted that a deterioration of the European situation could prod board members to allow the existing rates to be sustained for a number of months at the start of 2011, which is generally in line with projections made by most economists.