Threats of recession in Europe and a general slow down on major Asian economies would likely lead the Reserve Bank of Australia (RBA) to implement more cuts on the country's cash rate come the first month of 2012.

The RBA December board meeting minutes, released on Tuesday, has highlighted the fact that both China and Brazil have pushed back their policy rates, and considering the alarming development in Europe, it is not remote that Australia will follow suit.

The RBA has actually slashed its interest rate two months in a row, which now stands at 4.25 percent, but the central bank board noted that "the news on Europe had been notably weaker and it remained unclear as to how the current situation would be resolved."

The board hinted, and many economists agree, that an eventual downturn in Europe would prompt policy managers to opt for lower cash rates next year if only to provide breathing room for the domestic economy.

"It seemed highly likely that the sovereign credit and banking problems would weigh heavily on economic activity there over the period ahead, and there was a non-trivial possibility of a very sharp contraction," the RBA minutes stressed.

Yet the board admitted that "the timing and magnitude of any effects ... remained very difficult to predict."

While economists have painted a much stable economic environment in this part of the world, the RBA warned that the situation in Europe could graduate into something serious, "which would have global effects notwithstanding the capacity of the authorities in Asia to apply more stimulatory policies."

However, some form of relief has been highlighted by RBA's monthly assessment, with the board members noting that the American economic issues have largely settled down, lifting off some concerns and allowing for more growth to be appreciated.

Despite the brakes applied by China on its own economy, the Australian economy has returned positive number that indicate movements toward north, the RBA said, but it warned at the same time that commodities have eased down a bit this year, as sector that fuels the country's growth.

Banks have called for further rate cuts to sustain that movement and analysts said that it is likely the RBA will take heed as inflation numbers of major economies flashed moderating movements this year.

Judging on the general content of the RBA minutes, Westpac chief economist Bill Evans said that it is safe to say that more cuts will come in the months ahead as the country's central bank clearly signifies its intention to closely monitor the European development.

"With such clear emphasis being placed on Europe ... and likely underwhelming data on the labour market, the housing market and the consumer spending, the case remains strong for a follow-up move in February with another 25 basis point cut timed for May," Evans predicted.

Also, Macquarie analyst Brian Redican believes that the RBA has linked the crisis in Europe to what will transpire in Australia in the event of a collapse.

"The comment that credit conditions had tightened in Australia and that companies remain cautious about increasing hiring shows the bank is very focused on what's happening in Europe and the impact on the economy and banking sector," Redican was reported by Agence France Presse (AFP) as saying.